"Your conversations need to be about much more than just investments. Clients want to talk about their challenges, their opportunities and their long-term financial well-being."

Up Close and Personal

By John Bowen

When looking for investment advice today, the wealthiest investors are in a position to pick and choose among a wide variety of professionals, including financial planners, CPAs, bankers and even insurance agents and attorneys. Moreover, the sheer number of similar products and services now available has turned these products and services into commodities, making it difficult for investors to differentiate among them in any significant way.

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As a result, investors are not content with product recommendations, no matter how thoughtful those recommendations may be. They want to know that they have someone on their side who is continually seeking to understand them better in order to address their changing financial challenges more effectively.

What they want, in short, are client-centered advisors. These advisors make client relationships their top priority. This doesn't mean that they are unconcerned about making quality recommendations and offering an outstanding investment process, but they don't let investing take priority over their relationships with their clients. Client-centered advisors stand in contrast to investment-centered advisors, who tend to be more technically oriented and focused on developing investment strategies, structuring portfolios, analyzing risk and ensuring that they have the best investment program for clients.

The Business Line

Research by CEG Worldwide shows that when clients have regular and meaningful interaction with their advisors, those clients are much more inclined both to give their advisors more assets to manage and to provide referrals. One study we conducted during the depths of the 2001 market downturn compared how investment-centered and client-centered advisors fared over a six-month period in four areas: new clients, average assets from each of those new clients, number of existing clients providing additional assets and the average amount of additional assets.

In every area, client-centered advisors enjoyed substantially better results. They obtained an average of 6.8 new clients (compared to just 1.3 for the investment-centered advisors) and had an average of 7.3 existing clients provide them with additional assets to manage (compared to only 0.8 for the investment-centered advisors). In all, client-centric advisors gathered nearly $2.3 million in additional assets, while their investment-centered peers brought in only an additional $76,700.

Why do client-centered advisors enjoy these higher levels of success? Because close relationships provide advisors with numerous opportunities both to serve their clients well and, at the same time, deepen their ties further, which in turn leads to additional opportunities.

Close relationships with clients give client-centered advisors three key abilities:

• The ability to handle otherwise unexpressed client issues. The more advisors talk with their clients, the more their clients tell them. When clients are never given a good chance to raise issues, they more than likely never will.
• The ability to capitalize on new opportunities. Only when advisors know about events in their clients' lives that represent opportunities—the birth of a child, for example—can they capitalize on those opportunities.
• The ability to build overall rapport. The personal connection the advisor and client form is the glue that can hold them together across time and through good and bad markets.

The Personal Bond

So how do you go about creating close relationships with your clients? The most important thing to remember is that your conversations need to be about much more than just investments. Clients want to talk about their challenges, their opportunities and their long-term financial well-being. They want you to offer reassurance, to act as a sounding board and possibly even to provide advice on personal issues. In other words, they want a real connection with another human who cares about them. Conversations about investing will not create or sustain this kind of connection.

One piece of industry research highlights the importance of connecting with your clients on issues that are significant to them personally and outside of the realm of the financial markets and investing. This study asked 941 investors, each with average assets of $286,000, about what they believed their advisors knew about their personal lives and specifically, their families.

Family Matters

Those advisors ranked as having a high level of knowledge were seen as being familiar with many different aspects of their clients' family members, including career, interests, hobbies and important dates like anniversaries and birthdays. And this knowledge was not limited to the clients' spouses, but extended to all important family members, including beloved pets.

In contrast, advisors in the low-knowledge category were seen as knowing little about their clients' families. At best, these advisors knew that a client had a spouse or children, but knew little beyond this, including even the names of the spouse and children.

The study found that most advisors failed to make the grade in their clients' eyes when it came to knowledge about their families. Only 13.5 percent of advisors were seen as very knowledgeable about their clients' families, while about one-fourth (26.7 percent) were seen as somewhat knowledgeable. Six out of 10 advisors (59.8 percent) were seen as knowing very little about one of the most important aspects of their clients' lives.

It's important to note that the study asked investors how they perceived their advisors' knowledge of their families. It did not ask advisors what they actually do know about their clients' families. This is a big difference, because it doesn't matter if you have an encyclopedic knowledge of your clients' families if you fail to communicate this to your clients.

The Referral Curve

This research also found a clear link between clients' perception of how well their advisors knew their families and how many referrals they gave to their advisors. Clients who ranked their advisors as having low knowledge of their families provided an average of just 1.6 referrals each for investors with at least $100,000 in investable assets over the previous 12-month period.

Advisors seen as having medium knowledge received twice as many referrals from each client—3.3 on average. And high-knowledge advisors received nearly 2.5 times as many as those with medium knowledge, obtaining an average of 7.9 referrals from each client.

This kind of exponential referral curve demonstrates the opportunities for advisors who know their clients well (and just as importantly, effectively communicate to their clients that they know them well). The more advisors know about their clients, the more they know about the other people in their clients' lives—and not just members of their families. This knowledge directly translates into potential referrals.

Given that so few advisors make it a priority to have in-depth knowledge about what is a top priority for their clients—their families—there is a tremendous opportunity for you to differentiate yourself in this area and reap the rewards that client knowledge can bring.