Clients that are engaged in the financial planning process are more profitable and more likely to refer their planner to a friend or family, according to new research by international consultancy Advisor Impact.
The Economics of Loyalty study, which surveyed 1000 US investors, each with a financial adviser and who contribute to or make the financial decisions in their household, studied the scope, depth and quality of the relationship between a client and his or her financial adviser.
Clients were divided into four groups – content, engaged, complacent and disgruntled.
Of the respondents, 31 per cent were content, 33 per cent were engaged, 19 per cent were complacent and 17 per cent were disgruntled.
The study found a direct link between those who were truly satisfied (content or engaged) and the amount of money they were willing to put under their planner’s care.
Engaged clients were significantly more likely to refer their adviser, and only those who fell into the engaged category had actually provided a referral in the last 12 months.
“The reward for going to that deeper level of commitment is that [clients] are substantially more profitable,” says Julie Littlechild, president of Advisor Impact.
The research also identified a difference between the perceptions of engaged clients and content clients when it comes to service and relationship satisfaction.
While engaged clients are no more satisfied than content clients with the service provided by their adviser, Littlechild says engaged clients are more satisfied with the overall relationship they have with their planner – and are more likely to have been receiving a holistic service offer.
When asked whether they had considered leaving their adviser, only clients in the disgruntled category responded ‘yes’.
“When it comes to measuring the quality of our client relationships, loyalty and satisfaction might not be enough,” Littlechild says.
“Loyalty is important – we need it – but it’s not going to tell us about relationships.”
According to Littlechild, planners need to develop a tactical plan to increase client engagement, starting with understanding what clients’ value by implementing a consistent process to gather client feedback.
“You need to measure those relationships, you need to have a solid sense of what clients need,” she says.
“Manage that foundation and build on that foundation to grow.”
The next step is to define the client experience by segmentation, she says.
Advisor Impact segments clients via assets; revenue generated in the last 12 months; referrals generated in the last 12 months; potential for growth (including cross-selling, consolidation, inheritance and income); and time required to service the client relative to the value of that client.
“We cannot have uniform levels of service for all clients,” Littlechild says.
Step three is for planners to “analyse the plan” – define their offer, or baseline commitment to clients, and step four is to communicate value.
“Engaging clients is predicated on the clients’ understanding what they are going to receive,” she says. “We have to help clients understand what they expect.”
The last step is to actively engage clients, which Littlechild says may then translate into referrals: “Engaging clients is an active process. Engagement is about the personal relationship as well.”