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How (and Why) to Measure Client Retention

Once you have a new client, their expectations change, and yours should, too. Naturally, a client is engaged in the beginning – after all, they’ve been evaluating your services and comparing them to others.

However, inspiring client loyalty and strengthening retention is often challenging for both new and established advisors. Furthermore, accurately measuring client retention can create more questions. Poorly integrating client surveys or other tools to gauge satisfaction can confuse not only your clients but also your advisors, thus creating friction in the overall experience.

How to measure client retention

Retention for financial advisors doesn’t necessarily work the same as with other industries. While client satisfaction is paramount, clients aren’t purchasing various products, and you shouldn’t have to lure them into your practice. In an ideal world, your new client stays with you year by year as you help them navigate complex financial and life decisions.

For that reason, the most obvious way to review your client retention rate is to find the average length of time a client spends with your firm. But that’s a reactive step, and it doesn’t necessarily tell you much about why they’re leaving.

Of course, compiling client data manually can be a tedious task. Luckily, your team can pull information to calculate client loyalty through a variety of tools. Your CRM and growth platform, among others, tend to offer insights. You can then use the information to determine client retention directly or use the numbers to calculate key metrics yourself.

Three of the main client retention metrics include:

  1. Client retention rate: This is the percentage of clients you retain over a given time period. To calculate this, you would use the following formula:Client retention rate: ((clients at the end of the period – new clients ) / number of clients at the beginning of the period) x 100
  2. Client retention cost: This calculation highlights how much it costs to retain a client. This can be used to better budget for your retention activities. To find your client retention cost:Client retention cost = cost related to client retention during a period / number of clients
  3. Client satisfaction score: If you want a qualitative way to measure client satisfaction, this simple formula makes it easy to understand where you stand. The calculation is:Client satisfaction score = satisfied clients / total answers

However, it becomes easier to measure retention when you have client service and engagement tools that offer insights into client psychology and track client responses. At the same time, numbers don’t necessarily tell the whole story. You’ll also want to consider questions like:

  • How often do clients contact you?
  • How quickly do they respond to your communications (if they respond at all)?
  • Do they update you on changes to their financial goals or unexpected life events?
  • Do they implement recommendations?

Proven Retention Strategies for Financial Advisors

Client success – essentially performance – isn’t necessarily the main barometer for most clients. In fact, studies show that client churn is largely linked to a lack of communication or a poor client relationship.

Below, we’ve pulled together top, easy-to-implement strategies that foster loyal clients and improve your retention rate.

Plan Communication

A surefire way to improve the client experience is to map your vision for client communications. Just as with any relationship, regular and relevant communication is important. Assuming that following up with clients will work itself out can cause bottlenecks and make it difficult to manage engagement.

As a result, you’ll want to map out how you will communicate with clients. Understanding the communication flow for both a new client and an existing client empowers you and your advisors to be proactive when it comes to your clients’ needs.

This can include topics such as:

  • How you plan to communicate (SMS, email, phone calls, or all of the above)
  • How often do you plan to follow up with clients
  • What steps might you take during chaotic periods when many clients are concerned about their portfolios
  • How to scale communications as you grow your business

Set Clear Expectations

Another key aspect is setting clear expectations and responsibilities. New clients may assume that all they have to do is give you their account information, and you’ll do the rest.

However, client success hinges on them being involved in the planning and investment process. Furthermore, even if clients believe they are okay handing off their responsibilities, any drop in value, no matter how short-lived, will impact their client satisfaction harder. However, if they are collaborating with you and understand their role and your value as an advisor, it will be easier to weather the storm.

Position Your Services

A financial advisor is more than short-term portfolio performance. However, many clients may not be initially aware of the width and depth of what you offer. This can lead to client churn and low client loyalty, as they are not fully aware of your value.

It’s important to be clear in the beginning that you want to do more than grow, preserve, and manage their wealth. Your end objective is to help your clients meet their long-term goals.

Build Real Relationships

One of the best ways to ensure client churn is to make client interactions only about their portfolio. Money touches all of life’s milestones – career choices, relocations, children, education, marriage, retirement, and leaving a legacy. It’s an emotional endeavor, and solid client experience takes this into account.

Take time to get to know your clients on a personal level. You can do this by setting up family meetings, sending them follow-ups about their life and not their portfolio, and showing them appreciation through events, birthday cards, and other strategies.

Upgrade Your Technology

Finally, it’s impossible to accurately manage your current clients, scale your operations, or measure client retention without the right tools. Improving your technology enables you to better communicate with clients, assess their risk tolerance, proactively check in on their market sentiment, and get client feedback. Modern technology also supports your advisors and allows them to work more efficiently without worrying about potential compliance issues or wasting time on manual tasks.

More Tips on Boosting Client Retention

Client engagement is one of the best indicators of how likely you are to retain a client—using the above strategies, measuring your retention rate, and linking that to how active your clients offers a full picture of how effective your operations are.

To learn more about client engagement, what it is, and how it can help your firm, check out our comprehensive set of client engagement strategies.

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