A year on from the US stock market’s low in March 2009, some clients may be thinking it is time for action. Great you say! They are ready to return to active investing. Not exactly. They are thinking about changing advisers.
- Why do clients leave?
- What are the early warning signs?
- Can the relationship be saved?
If all this sounds familiar but you cannot place the scenario, think a little harder. Think romance.
Why do people leave a romantic relationship after a month, a year, ten years? Sometimes because an attractive alternative appears on the horizon. Other times because they feel underappreciated and taken for granted. The magic has gone out of the relationship. They feel their life is drifting from day to day without a goal or reward in sight. They may feel their significant other takes advantage.
Back to the client – adviser relationship. Since it is not a legal contract like marriage, it is a lot easier to get out of an investment advisory relationship – just walk away and take your money with you. Monogamy is not required either. Maintaining multiple advisers is not reviled like cheating; it is praised as diversifying.
One day your client meets a charming adviser quite by accident. They take a keen interest in their goals and dreams. They talk about having a plan to get there. Maybe they look back to October 2007 with hindsight – how their current adviser should have seen this coming; how well their own clients are doing. Like in romance, maybe they exaggerate a little! Over time he keeps in close contact with his new prospect and remembers details about their life. The client thinks the grass is greener on the other side.
The client reflects on their current advisory relationship. They feel unappreciated. They are not getting the attention received in the “courtship” phase. As the investing world moves from transactional business to fee-based revenue, some advisers may focus on finding new clients (and streams of revenue) neglecting some clients currently providing dependable revenue.
Maybe they do not get called as much as they were previously. They do not see progress towards goals. They feel the relationship is going nowhere.
Warning signs
What are the warning signs a client is pondering another relationship? It has been said in romance if your partner starts going to the gym, gets better haircuts and starts dressing better they already have their eye on someone else. The investing version is probably taking a sudden interest in their portfolio, asking questions about fees and reading the financial newspapers.
Ignoring advice is another early warning. Someone outside the relationship is suggesting a different course of action. The client does not want to spend money establishing position only to unwind it later at another firm. Maybe there is a lag time between your suggestion and their answer implying they are running the idea past someone else. Sometimes the client brings in a third party who “must approve your recommendations” before they act. Those situations rarely get better.
In relationships a decline in candid conversation or “talking to each other” is a warning sign. The equivalent in investing relationships may be not having your calls returned.
Can the situation be addressed?
It is rare for the other party to “be put on notice” in romantic or advisory relationships. There is no probation. One day they get up and leave. You need to take the first step. In interviews with financial advisers I have found four proactive approaches:
Focus on the spouse
The investing analogy has a significant difference – there may be more than two people in the relationship. Often when interacting with a couple the financial adviser identifies and focuses on the “decision maker”. The other person gets little attention. In my own experience I have found drawing them in works, even if it is a change in behaviour in a long term relationship. When I would call, if the spouse answered, I would explain why I’m calling and give some details on the decision requiring action in their joint account. Sometimes you get answers like: “I appreciate you are taking the time to explain that to me, but I leave those decisions to (name). They are just coming now…”
Meet all the players
A variation on the above idea for the “hostile situation”. You have a joint account client relationship and one of the “names” does not like you. They give your contact person a hard time about you – you sense the hostility. An adviser in Texas has a strategy to get the hostile partner on the phone and plan a face to face meeting. “We’ve never met – we need to meet – maybe I’m not the right adviser for you.” They brought the issue to the surface.
When the three people meet, the adviser is completely prepared with portfolio research and performance figures. They focus almost all the attention on the hostile person politely and respectfully.
The adviser ends with: “Investing decisions should be based on knowledge, not emotion. I’ll give you enough information to make knowledgeable investment decisions.” Through the combination of depth of knowledge of the specifics of their portfolio and the respectful focus on the “hostile” spouse the adviser can build goodwill with both parties.
Change the focus of communication
“You only call when you want to sell me something”. In romance, “I’m being used.” An adviser in New York addresses the issue in two ways. They start sending educational material such as investment commentary reports. If the client is used to interacting with the adviser by phone they increase the number of communication channels. E-mails. Seminar invitations.
Newsletters. They are getting more attention that is not intrusive. See a newspaper story about one of their stocks – a great strategy can be clipping the original article attached to a note – “Thought you might find this interesting”. Your compliance area may have rules on procedures for notes. This simple strategy communicates: “Of all the people I could send this article, I chose you.”
The end of the road
You can feel the hostility boiling just below the surface of the relationship. Things are about to go from bad to worse. A Massachusetts adviser invites the client couple out to dinner. After they get settled and orders placed the adviser looks directly at them and says: “Things haven’t been good lately.” He stops talking. Usually at this point the clients explode with complaints, accusations, etc. The adviser listens calmly and does not return counter arguments. They do not accept blame either – they relate to the problem and draw them out. Once the anger has subsided and conversation resumes a normal tone, the adviser might sum up the points the client has made and calmly give broad reasons for the recommendations they made. The adviser then looks directly into their eyes and says: “What can we do to move forward?” It is very difficult for a client to say “no” we cannot move forward or give reasons to leave when you have addressed the issue face to face and born the tirade of their anger.
Care and attention
Like romantic relationships, attention and communication are important. You the adviser need to be aware of the warning signs. You need to make the first move. You may need to calmly walk into a difficult situation to give the other person the opportunity to get their issues out in the open. “What can we do to more forward?” sums it up.
Bryce Sanders is president of Perceptive Business Solutions Inc. His Book “Captivating the Wealthy Investor” is available on Amazon.com
