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Engage Your Clients and Enlarge Your Practice

"Economics of Loyalty" Provides a Roadmap for Business Growth

C. Marie Swift, 08/07/2008

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.

In addition to identifying a higher tier of client satisfaction, by reporting the differences between satisfied and engaged clients, Littlechild said that the "Economics of Loyalty" provides a roadmap to transform your satisfied-but-passive clients into actively engaged clients capable of contributing to business growth. For instance, the study found that engaged clients tend to utilize and appreciate the full array of a financial-planning firm's services--including retirement planning, tax planning, estate planning, and trust services. In fact, 80% of the most satisfied clients said that their primary advisor provided comprehensive financial planning--that dropped to 30% for the least satisfied.

Additionally, the study found a clear and direct link between having a written financial plan and satisfaction with the relationship. Sixty percent of the most satisfied clients said that they had a written financial plan, compared with 27 percent for the least satisfied clients. The study also found that among the most satisfied clients (rating a 10 out of 10), 52% said that their advisor plays a coordinating role, acting as a quarterback, compared with 19% of the least satisfied clients. And, almost three times as many very satisfied clients said that their advisor works with their extended family.

"Clearly, the relationship with the engaged client is defined by a higher degree of contact, a more holistic offering and a deeper personal relationship," Littlechild said. "The study also underscored that this personal relationship is built face-to-face. Only 6% of the most satisfied clients said they did not meet with their advisor in the last 12 months; that number jumped to 21% among the least satisfied clients."

While the study links meeting regularly with clients to discuss their financial plan with business growth, Littlechild said that a bigger question that arises from the new data: "Is it more contact or better contact that will positively impact my practice?"

"Sure, advisors can schedule another meeting to review performance from the last quarter, but advisors need to work at establishing something deeper," she said. "There are relatively simple things they can do to change the tone and focus on the meeting. Instead of talking at the client and looking back, advisors need to listen to clients and look forward."PAGEBREAK

"There are structural elements to building a deeper relationship. Advisors need to gather feedback on their services as well as up-to-date personal information from clients and then dig in," Littlechild said. "We are talking about a very personal activity and how you deepen the relationship really does depend on the individual clients, but advisors should remain focused on value their core activity."

For example, Littlechild suggested that, in advance of each client meeting, advisors send a "Client Profile Update" questionnaire that asks clients to note any changes to their circumstances. "The questionnaire covers change with family, employment and professional advisors, as well as new goals, hobbies or charities," she said. "Client feedback gives the advisor complete, current information and can open the door to some deeper conversations."

Finally, if you make changes to your practice, such as implementing the Client Profile Update, Littlechild said that it is important to package and promote the change as something different you are doing to improve your practice.

"Clients respond to efforts to take the business relationship to the next level. They appreciate a willingness to invest more that just the ticket price to having satisfied clients," she said. "In fact, the study found that client engagement is not closely linked to the length of the client/advisor relationship, suggesting that commitment doesn't just grow naturally over time, but must be built actively. Because the economic benefits of moving clients into the 'engaged' category are too great to ignore, advisors have to do more than hope clients will move on their own. Advisors must intervene to create and leverage client commitment."

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