Here's Why Clients Fire Financial Advisors
NOTE: If you’re a new financial advisor, make sure you check out Your First Year As A Financial Advisor, where I reveal several things every new financial advisor ought to know.
It’s happened to the best of us.
You get that phone call, email, or letter basically saying “we’re through”.
And no, I’m not talking about boyfriends and girlfriends (although I wrote an article about how prospecting is like dating)…
I’m talking about when financial advisors get fired by their clients.
I was recently re-reading a study by Spectrum Group that showed how 58% of high-net-worth investors have switched financial advisors within their lifetime, and 23% have done so within the past five years.
In other words, it happens a lot, but can you prevent it? Sure, you just have to know the reasons why financial advisors get fired. If you were working at a car dealership and you saw your fellow salespeople get fired for burning rubber in the cars, what would you do? NOT burn rubber in the cars… bingo!
Anyway, investors who dump their financial advisor give a lot of reasons for doing so, but there are a few that stick out above the rest. Here they are…
The Advisor Doesn't Stay In Touch.
This is such an easy way to prevent getting fired: just keep in touch with your clients. But here’s the problem – a lot of financial advisors bite off more than they can chew.
If you’re a brand new advisor with a small book of business, you have absolutely no excuse.
Yet, as a seasoned financial advisor with tons of clients, you can only allocate so much of your time to your clients. This is an extreme example, but if you’ve got a book of business with clients ranging from $10K AUM to $10M AUM, you’ve got a problem.
You’ll naturally allocate more of your time to the higher-end clients and hope that they rest just stay with you. Well, hope isn’t a strategy and I can’t cash a check signed with hope. So what’s the solution? Either trim your client base or hire someone!
A lot of advisors get nervous about bringing on an associate, but if they don’t want to lose their lower-end clients altogether, there’s really no other viable option. If you literally cannot keep in touch with everyone you serve, they’re going to leave, and what’s worse is that they’re going to spread the word about how you didn’t keep in touch.
ALSO READ: A Day In The Life of a Financial Advisor
The Advisor Doesn't Give Good Advice
This makes sense. If you hire a financial ADVISOR, you’re banking on the fact that this person can provide you with advice to help your financial situation.
But what is the root cause here? Is it really that financial advisors don’t know what they’re doing? I don’t think so. Financial advisors are some of the smartest people I have ever met. I don’t mean they can teach me about Einstein’s theory of relativity, but I mean that when it comes to making good decisions and laying out a plan, there’s nobody better.
The issue isn’t that financial advisors don’t know enough, it’s just that they usually don’t know a particular client’s situation WELL ENOUGH. When I see advisors get fired because of this, it’s usually because they are spreading themselves too thin with the types of clients they serve. You cannot possibly provide world-class advice to young, old, retired, working, executives, physicians, conservative, and aggressive people all at the same time.
When you choose a niche and stay within that niche, you eventually develop an unparalleled level of competency. That means you know the niche’s challenges and solutions like the back of your hand, which means that you are able to consistently deliver great advice.
ALSO READ: 5 Best Niches for Financial Advisors
The Advisor Doesn't Promptly Return Phone Calls.
Hmmm… we’ve talked about hiring someone to avoid getting fired… and choosing a niche to avoid getting fired… do you see a pattern?
It seems as if a lot of financial advisors get fired because they stretch themselves too thin.
This insight comes from a study conducted by Financial Advisor magazine. They asked 1,400 advisors to give the most common explanations clients gave for firing their previous advisor. 44% said that it was because their phone calls weren’t returned fast enough.
Another study showed that 66% of HNW baby boomers would fire an advisor who didn’t return phone calls promptly. 58% of Gen Xers said it would be their primary reason for firing an advisor, and 52% of millennials said the same thing.
I know that sometimes the phones ring off the hook. The best solution, aside from fine-tuning your schedule, is to coach your clients on what to do and what to expect. You don’t want to eliminate the phone calls completely, but you do want to eliminate the ones that stem from a panic attack after binge-watching CNBC
Their Portfolio Is Performing Poorly.
There are some things you can’t control. Everybody hates losing money, and if the overall markets are down, you will hear about it.
According to the Financial Customer Experience Report by Qualtrics, 42% of people choose their financial advisor because of a good investment track record, yet only 8% leave because of a poor investment track record. So, having poor investment performance isn't as big of a deal as some "gurus" and "experts" make it seem.
In fact, clients are nearly twice as likely (14%) to leave you because of high fees than a poor investment track record. After that, the top reasons for leaving a financial advisor include poor customer service and a lack of personal attention, which I've discussed in this article.
However, it’s the financial advisor’s job to stop clients from acting on emotion. Advisors take pride in creating financial plans for all types of markets, but not all clients know that.
This falls into the “managing client expectations” category, but there are a couple of things you can do in a poorly-performing market.
First of all, keep cool and calm. The financial services industry is one of the most stressful in the world, so if you can’t cope with stressful situations, perhaps you shouldn’t be in it. You should remain upbeat, enthusiastic, and always have on your game face.
Secondly, take the time to explain to clients how the process works. It doesn’t matter if they have millions of dollars – they might not have a clue what’s going on. If you explain to them that the stock market will be choppy in the short term, but over the long term, they should come out ahead.
If you dig a little deeper, you’ll find that most investors don’t want to take huge risks for huge returns – they just want their money to be used efficiently. When you make the case that what you’re doing is the most efficient way to put their money to use (over the long-term!) they are more likely to stay with you.
If you have any questions, feel free to reach out to me and I’ll help you if I can.
ALSO READ: 5 Client Loyalty Strategies to Help You Retain More Clients
How Much Is Client Attrition Costing You?
Want to hear something scary?
According to PriceMetrix, financial advisors lose 10% of their clients every year (on average).
And households with more than $100K in assets are even worse because they have a 13% chance of leaving their financial advisors… per year.
This means if you’re a financial advisor, it’s your duty to stand guard against your clients leaving you. I mean, imagine losing 13% of your income in the next 365 days.
For the average financial advisor (who makes about $90K per year) that represents over $11,000 in lost income… and that’s a NORMAL year. It could be much worse.
And keeping your clients is a lot cheaper than going out and getting new ones.
In fact, the Harvard Business Review reports that acquiring a new client is anywhere from five to twenty-five times more expensive than retaining an existing client. This means if you lose a client, your actual loss could be much higher than the 13% figure I just gave you.
So, make sure you put the information in this article to good use to keep your clients. :-)
P.S. If you're a financial advisor who wants to get more clients from LinkedIn, make sure you check out How to Get Clients With LinkedIn: How Financial Advisors Can Set Appointments and Convert Prospects With LinkedIn