The financial advisory industry has changed dramatically over the past two decades. Close examination of the RIA market reveals a vibrant industry with a compounded annual growth rate of 12% in AUM over the past five years. But with growth comes increased competition: everyone wants a piece of the pie. This can make the hunt for the very best clients challenging. To sustain healthy growth and find new business, advisors will need to work harder. To find and keep good clients you need to communicate, educate, and communicate again–by asking for referrals from existing clients.
The benefits of retaining satisfied and loyal clients are tough to quantify, but meeting client needs and communicating with clients are necessary elements. In this challenging environment, communication with clients is vital to keeping them satisfied. If clients feel that you are constantly communicating with them, their trust and confidence in you will increase. Taking the time to make this extra effort goes a long way in helping to build long-term client relationships.
No. 1: Keep Talking, Especially in Tough Times
The fear of recession has had a measurable impact recently on the minds and hearts of investors. "Clients are getting very nervous and more so than any other time in the last 20 years; they are fearful their future retirement is going down the drain," according to Pat Raskob of Raskob Kambourian Financial in Tucson. How are advisors addressing the needs of clients who have serious concerns about an economic recession this year? The best advisors in the industry are proactive, keeping customers informed of the status of the economy and market on a regular basis. E-mail is the most popular way advisors communicate with clients–with 80% of advisors using this communication tool. Seventy-three percent of advisors use newsletters to impart information to clients and build closer relationships. In fact, the number of advisors in our survey sending newsletters to their clients increased to 73% from 62% last year.
During times of financial stress, clients either contact their advisors frequently, expressing varying degrees of anxiety or concern, or conversely they worry alone and wait for their advisors to reach out to them. The latter group should be top of mind for advisors, especially since their biggest challenge is how they manage their time. In other words, they're not spending enough face time with clients. In fact, 50% of advisors say client communication is the area that most needs improvement.
No. 2: Be an Alternatives Teacher
When facing a more challenging market environment, advisors are increasingly using alternative investment products to enhance returns and mitigate risks. In the past six years, 80% of advisors have increased their use of alternatives (investments outside of stocks, bonds or cash), with 18% of advisors increasing their use more than 100% since 2001. But according to advisors in our AdvisorBenchmarking survey, clients are not familiar with alternative investments, with 67% of advisors claiming that less than 20% of their clients ask about alternative investments. About half of advisors (51%) say the main reason clients hesitate to invest in alternative investments is a lack of understanding. This presents an opportunity for advisors to educate their clients on these investment options and their potential benefits.
No. 3: Ask for Referrals
As advisors look to the future, 86% say the key driver for growth in the next five years will be referrals from existing clients, while 58% believe that organic growth from existing clients will lead to greater success.
