Virtually all referrals come from engaged clients

The study segmented clients who referred (calling them engaged clients) and tried to discern what differentiates them from “content” clients, who express of high degree of satisfaction with their advisors, but tend not to provide referrals.

“Research shows even though 95% of clients indicated they were satisfied with their advisors, they were still not providing referrals. Referrals occurred only when investors were engaged with their advisors. There is a definite difference between the comfortable client who doesn’t refer and the engaged client who takes action and does refer,” says Stephen Smith, senior director of marketing with Univeris.

The study found only a marginal improvement in clients’ opinion of their advisor between engaged and comfortable clients. When asked to rate their satisfaction of the overall relationship with their advisors out of 10, content clients ranked their advisors an 8.6. Engaged advisors ranked their clients an 8.8. But in that tiny margin lies a massive growth opportunity for an advisor’s business.

“There’s something going on with this segment of investors that makes them produce a positive impact on the advisors,” Smith says. “An engaged client is not only a satisfied client, but also one of the most profitable for advisors.”

At the lower end of the “satisfied” client scale is the “complacent” client. The study found the key differentiator between a complacent and content client was a higher opinion of the advisor’s reliability. Content clients can expect their advisors to do things such as return phone calls and attend annual meetings.

Client satisfaction depends on the extent to which the advisor has built deep relationships with clients, is proactive in managing clients in turbulent times – specifically, staying in contact – and have clearly communicated their value in order to create a marked disconnect between the value of advice they offer and that of market performance.

The study recommends advisors constantly define and clearly communicate their service standards to separate these elements from market performance.

“While investment performance is clearly an important driver of satisfaction, we can see many clients have remained satisfied during recent markets. We believe that in these cases, the advisor has done a better job of communicating the value that he or she delivers above and beyond investment performance,” says Julie Littlechild, president of Advisor Impact. “This reminds us that in good times and in bad advisors need to both define and communicate value.”

The study highlighted that having a clearly defined long-term financial plan that clients understand can go a long way in alleviating misgivings they have about market performance. In the absence of understanding the value of advice, which includes things such as tax planning and estate planning, clients will tend to be more strongly influenced by investment performance.

Statistics from this study seem to bear this out. Almost two-thirds of clients said they would like to know more about tax planning from their advisor, 59% want to know more about retirement planning and 51% want their advisors to tell them more about estate planning.

Engaged clients appreciate a plan that is geared toward factors that are most valuable to them, which may not be the most important facets in the minds of advisors.

“When defining your value, look first to clients for input. Do not assume you know what is most valued for the service you provide your clients,” Univeris’ whitepaper on the study suggests.

In fact, during the worst of the market downturn, between September 2008 and March 2009, the study found meeting long-term goals and objectives was the single most important client concern in the advisor/client relationship. Having a clear plan for the future was highlighted as the most important thing for clients, overtaking for that brief period the historical top answer of advisor trustworthiness.

In other words, clients want advisors to provide clear answers to the commonly asked “Am I going to be okay?” question that pops up in turbulent market conditions.

The study found, on average, clients would like to receive 2.6 portfolio reviews a year. They further outlined a one out of three of these meeting could be conducted via phone.

Also of note is that clients don’t demand the senior advisor to be the point of contact for all business. More than half (53%) said they are comfortable dealing with other team members of an advisory firm.

The study suggests advisors should work to promote the competency of their team, which will create a more efficient process that allows more clients to be served at a higher level of service.

“Some advisors think they have to be involved in every aspect of the client relationship. There’s an opportunity to leverage the role of other practice team members and delegate responsibility,” Smith says. “The tip here is, we saw advisors [with] higher levels of client engagement are comfortable working with other team members and proactively educate their clients on the benefit of a team approach. Those advisors tell their client it’s okay to deal with my assistant on X, Y or Z because I’ve trained him or her on how to do this for you.”

It’s interesting to note that the study finds clients don’t refer friends and family as a favour to the advisor. Generally, they refer to contacts only if they genuinely believe their advisor can help those personal contacts. However, more than 75% of clients say they’re comfortable referring their advisor.

“When we asked how likely are you to refer a friend, family member or colleague, most clients expressed comfort, but very few actually do it,” Smith says. “Virtually all referrals come from an engaged client.”

Building a practice that engages clients organically generates referrals although it probably doesn’t hurt to ask either. Twenty percent of the so-called disgruntled clients – those who are predisposed to dump their advisor – also indicated they had given a referral to the advisor in the last 12 months.