"Economics of Loyalty" Provides a Roadmap for Business Growth
Call him Joe Rainmaker. When his friends and colleagues arrive at your door, they almost always become clients. Why? Because Joe lays the groundwork and qualifies leads by educating these prospects about your firm and suggesting how you might help them. While you've always known there is something special about clients like Joe, the "Economics of Loyalty," a comprehensive study conducted by the Toronto-based Advisor Impact, Inc. with the help of Vanguard, identifies just what it is about Joe that positively impacts your practice--he's "engaged," not merely satisfied.
"More than simply handing out your business card, an engaged client generally relates a personal example, perhaps about an issue you have you've resolved for them--and that personal experience establishes a valuable connection,"
said Julie Littlechild, president and founder of Advisor Impact, which provides practice-management training and tools for financial advisors.
According to Littlechild, the growth of your practice depends not on satisfied clients sticking with you but on engaged clients like Joe who actively recruit new prospects. Significantly, Littlechild said that the study illuminates what many advisors, reluctant to ask for referrals, have long suspected: Rarely will clients provide a referral just because they're asked.
"Advisors are taught in marketing seminars to ask for the referral, but we found a very tenuous link between asking for a referral and getting a referral," Littlechild said. "Most often, engaged clients make referrals, often without being asked to do so, because in their minds they are not attempting to do the planner a favor, but rather to do their friend or colleague a favor."
Accordingly, instead of asking for referrals from satisfied clients, Littlechild said that growing your practice requires pushing current clients to higher levels of commitment by enhancing the relationship and positioning yourself as a resource they would be happy to share with others.
"It is at these higher levels of commitment, which we define as the engaged client, that the needs of the client and the advisor are most closely aligned," Littlechild said. "Advisors should strive to achieve a balance between a level of service that is both meaningful to their clients and profitable to them, but which also encourages clients to be actively engaged in the growth of the advisor's business."
Insights on the economics of client satisfaction presented in "Economics of Loyalty" were drawn from interviews Littlechild and her team conducted with 1,000 Americans who work with a financial advisor and contribute to or make the financial decisions in their household. (This was a carefully structured sample based on household investable assets, including a full sample with $5 million-plus.) Of the investors surveyed for "Economics of Loyalty," 17% were disgruntled, 19% were complacent, 31% were content, and 33% were engaged. Importantly, 100% of the disgruntled had thought about switching advisors, whereas none of the investors in the complacent, content, or engaged categories had thought about switching advisors.
Littlechild presented the study's findings in her keynote address in March at the 2008 FPA Business Solutions conference in Chicago. While a summary of the survey was distributed to journalists in April, the full report is available at www.AdvisorImpact.com.