"While investment performance is certainly an important issue, it is not nearly as important to affluent clients as the quality of the relationship itself."

Touch and Grow

By John Bowen

Many financial advisors make the mistake of assuming that if they just manage their clients' assets well, their clients will be satisfied. So they spend the bulk of their time and effort trying to ensure satisfactory investment performance for clients.

Reprinted from:

Unfortunately for these advisors, however, recent industry research tells us that this assumption is far off the mark. While investment performance is certainly an important issue, it is not nearly as important to affluent clients as the quality of the relationship itself.

We can see this best by looking at the reasons why wealthy investors switch advisors (and the research shows that they are indeed changing advisors all the time). A recent study by Russ Alan Prince and Brett Van Bortel shows clients leave their advisors most of the time because they are unhappy with the service they received (87 percent), not because they are unhappy with the investment returns (13 percent).

Research also tells us that advisors who do grasp the enormous importance of building solid client relationships are among the most successful ones in our industry. In fact, advisors who make it a priority to expand their relationships with their clients earn significantly higher incomes than those who do not. A study by CEG Worldwide found that nearly all (90.2 percent) surveyed advisors earning more than $150,000 per year view expanding client relationships as a serious concern in their businesses, compared to less than 40 percent of those earning less than $75,000 per year.

This delivers a clear message: You must combine high-quality relationship management with solid investment performance in order to succeed with affluent investors. I call this kind of focus on the relationship "high-touch, high-profit relationship management." This isn't just paying lip service to the need to be in close touch with your affluent clients. Rather, it's an intentional method of cementing the long-term relationships you have built with those wealthy clients. To be successful, this emphasis on client relationships must infuse all facets of your practice. The building of successful client relationships has to become your number one priority, bar none.

After all, one of the few aspects of our business that can never be turned into a commodity is the advisor-client relationship itself. Your clients can go to anyone to purchase generic investment products, but if you fill the role of their trusted advisor, they are unlikely to do so. Accordingly, you have to strive continually to enhance your relationships with your clients.

But even if you're highly committed to building outstanding relationships with your clients, the overall level of contact and meaningful communication you need to have to succeed with affluent investors won't just happen on its own. You must use a system that is designed to deliberately create, deliver, and sustain both a high frequency and a high quality of contact.

Frequency of contact. A new study by CEG Worldwide of affluent investors found that the most satisfied averaged a total of 28 contacts (in person, by telephone, by mail, and by email) with their advisors in a one-year period. Very dissatisfied affluent investors, on the other hand, averaged only 17 contacts over the same period.

Quality of contact. Another study by CEG Worldwide of affluent investors asked both very satisfied and very dissatisfied clients to rate their investment advisors in a range of areas in which quality of communication is critical. It found that the majority of very satisfied clients believe their advisors are patient, reliable, responsive, and warm; have good listening skills; and understand their specific needs. In contrast, the very dissatisfied clients gave their advisors generally poor ratings in each of these areas. It's clear from this research that quality communication plays a huge role in ensuring client satisfaction.

Many advisors who come from the product-oriented, transactional side of the business could never provide this level and quality of contact to each of their clients. They have been taught to sell and move on. They have few clients but many customers. This leads them to maximize their own income in the short run—often to the detriment of their clients' long-term success—and makes it difficult for them to create the long-term relationships that could be leveraged. So they can't build much equity in their businesses.

But those advisors who do build an emphasis on client communication into the fabric of their practices are well rewarded. In fact, nearly nine out of 10 advisors (89.7 percent) earning at least $100,000 say that maintaining client communications is a significant concern to them, according to CEG research. In sharp contrast, less than half of the advisors who are earning less than $100,000 think client communications is important.

In order for a high-touch, high-profit approach to relationship management to succeed, your client communication system needs to be built on what we know about what makes wealthy clients satisfied with their relationships with their advisors—the client satisfaction factors. Further research by my colleagues has identified four key areas by which affluent clients gauge their satisfaction with their relationships with their advisors:

• Client focus—your level of focus on clients' needs, interests, and goals.
• Leadership—providing comprehensive solutions to clients based on their unique needs and motivations.
• Attention—understanding and providing the level of personal attention that clients want.
• Shared values—a demonstrated sharing of some basic core values, common ground, and personal goals.

To sum up so far:

• You need lots of contact with clients—between two and three contacts every month with every client.
• You need quality contact with clients—the kind that requires excellent interpersonal skills and authentic caring and empathy.
• All your contact with clients must center on what makes clients happy—a focus on them, leadership, attention to their needs, and shared values.

This is a tall order. To accomplish it, you'll want to create a system in which contacts are predetermined and easily replicated between clients. At the same time, the system must allow for each contact to have your personal touch. While your regular review meetings and routine written correspondence can account for many of your contacts, you'll also need to initiate additional contacts with each client.

To ensure that you do so, spend time creating a detailed client relationship management plan for each of your affluent clients. Specify the date each contact will occur and the specific action you will take on that date. Here are several examples:

• Several times a year, phone each client right after they have received their monthly statements to ask if they have any specific questions about their accounts. Your clients will feel that you are always accessible and approachable, and you'll have a tailor-made opportunity to head off any discontent that may be brewing behind the scenes.
• In August of each year, set up a "back to school" review for each of your clients who is investing to pay for the education needs of their children or grandchildren. By setting up face-to-face meetings in this kind of regular, predictable pattern, your clients will feel that they are receiving a constant, steady level of personal attention from you.
• Once a year, take each of your clients and their spouse out to lunch. You'll ensure that the spouse understands the investment plan being used, and you will get to know both of them better so that you can identify any unique needs they may have.
• Send a small holiday gift in December of each year. Send it consistently at the same time and preferably buy the same type of item. Although it is small, this type of gesture goes a long way toward reinforcing to your clients that you are a reliable person who can be counted on to act consistently.

As you can see, each of these contacts is straightforward and easily accomplished. They simply require planning. And while you will repeat these contacts with each of your affluent clients, every contact will still be highly personal. Most importantly, each contact will go a long way to building a high-value, long-term relationship with your wealthy clients.

High-touch, high-profit relationship management will ensure that your affluent clients are likely to remain with you over the long term, provide additional assets, and make qualified referrals. If there is any one approach that I would emphasize to increase the chances of your success dramatically, it is focusing on your relationships with each of your high-net-worth clients. No other single factor even comes close in importance, so begin today to build a priority on client relationships into the fabric of your advisory practice.