Why clients leave a financial advisor (and what you can do about it)
Financial advisors and advisory firms looking to scale can’t rely solely on client acquisition. While attracting new clients does contribute to your firm’s success, the real growth is in retaining them.
High client churn stunts growth and creates irregular cash flow. It is also expensive in comparison to client acquisition—with it costing five times more to replace a lost client than to keep them.
And client retention is a significant concern. According to an E*TRADE Advisor Services report of registered investment advisors (RIAs), 20% of clients leave within their first year, and 25% leave in the second. After that, the rate drops until year five, when the turnover rate is 15%.
To better understand how advisors can boost retention, let’s look at the main reasons why clients leave their financial advisors.
The top 5 reasons clients leave their advisor
The same report highlights several reasons why investors, particularly millionaire investors, fire their advisors. In order of the top 5 motivations, clients leave because the advisor:
- Does not return phone calls in a timely manner
- Is not proactive about contacting a client
- Does not provide good ideas or advice
- Does not return emails in a timely manner
- Is under-performing compared to the stock market
Runner-up reasons include the advisor not understanding the client’s risk tolerance and losses over a 2- or 5-year period.
And many of these results were replicated in Nitrogen’s 2023 Firm Growth Survey. Timely client communication and regular meetings ranked high as effective relationship-building tactics at hyper-growth firms. This suggests that paying attention to client concerns about communication and being proactive does lead to improved retention.
We can break these down further to better understand related causes on the advisor side and how to fix them.
Does not return phone calls in a timely manner
If a client is contacting their advisor, they likely have a question, concern, or need to reschedule a meeting. Failing to follow up can leave clients feeling frustrated and neglected.
But advisors can’t spend their entire day calling back clients. Advisors today barely spend 20% of their time meeting with clients. Their schedule is dominated by administrative, marketing, and investment-management tasks.
However, it is possible to decrease your response time, such as leveraging customer service software to log calls or creating a system or strategy for addressing calls and other client communications.
You’ll also want to measure your response time to map your baseline and set a goal.
Is not proactive about contacting a client
Another client communication-based challenge is contacting the client before they get around to calling or emailing you. This lack of connection taps into the same feelings of neglect as not returning calls. It can make a client feel more like a number than a person.
The problem here stems from a few issues: Not having enough time, inability to prioritize which clients need the most support, and a lack of communication processes.
Using wealth management software that can prioritize your clients based on their risk tolerance, such as Nitrogen’s Risk Number, and sending regular check-in surveys to assess their sentiment are easy ways to automate the process. Tools that streamline the process for you enable you to spend less time on manual reviews and more time calling clients.
Does not provide good ideas or financial advice
This can be a bit trickier. Both the market and the client’s life can be unpredictable, and it’s possible to make a mistake. Clients unaware of their actual risk tolerance or goals can also hinder their advisor or financial planner from developing a solid plan. After all, advisors require accurate client information to give sound advice.
Another challenge can be in the presentation of ideas and advice. Not all people absorb information in the same way, so having a number of visual aids can help you to explain complex concepts.
Proposals with visual analytics are one way to better support your advice. Another way to ensure that you have the most accurate information possible to give your best opinion is to centralize your data. Integrations with your CRM or growth platform enable you to keep track of all a client’s data, as well as research and investment information.
Does not return emails in a timely manner
Email is becoming just as important as phone calls, especially for the younger generation of investors. You may have more leeway in terms of response time, but clients are expecting faster and faster replies.
The good news is that this can be somewhat easier to improve than phone response time. Automated messages that confirm you’ve received their email can help clients feel heard—even if you can’t read it yet. Having a live chat option on your website can also reduce the burden on you or your team to answer questions, especially common inquiries.
Is under-performing compared to the stock market
It’s impossible to predict the market, and there will always be times when a portfolio underperforms.
Often, solving this issue is about communication more than short-term performance. Being proactive about addressing a client’s potential concerns, gauging their risk tolerance, and providing easy-to-understand explanations of their portfolio’s long-term performance can all help remedy client anxiety.
Boost client retention
Financial advisors working on growing their firm don’t need to necessarily focus on explaining high fees or marketing to new clients. Client retention itself both maintains and grows an advisory firm through steady cash flow and referrals, respectively.
Excellent client communication is a significant part of turning current clients into a power base to drive growth. But it isn’t the only factor.
Watch our on-demand webinar on developing a superior client experience to drive referrals for more tips to grow your financial firm.