Bill Good: The Science of Client Retention

Absolutely. Refuse a referral to a small account and you will likely not get a referral to the next one, Uncle Harvey who recently sold "Harvey's Plumbing Supply" for $6 million.

"Stay or Stray" posts this caution: "Advisors should therefore be mindful of the time and resources they devote to small clients given their reduced likelihood of staying. More importantly, advisors should recognize the often imperceptible damage that small clients can cause to relationships with larger clients."

The implication of this is: off-load small clients.

I have ranted against this "book pruning" notion since 1990. It's advocated by almost all gurus and consultants and embraced by all the major firms. It is based on the 80–20 "Pareto Principle."

Even if Pareto is a sound economic principle and you should throw small clients off the bus — and I have anecdotal evidence against this — I would still rail against it.

I think it is unethical to kick someone out who gave you his or her trust, perhaps even helped you come to the party. I think it is bad for the industry. Book pruning generates tremendous ill will. No one wants to be sent to a call center. Finally, you can manage a large book of small clients if you get a junior advisor.

Deeper Relationships

The PriceMetrix study states: "Our analysis also revealed — not surprisingly — that clients with deeper relationships with their advisor are more likely to be retained; those with thinner relationships are less likely to be retained."

In thinking this through, I think there is a strong possibility that number of accounts is an objective measure of an obviously subjective relationship: "depth." How strong is your relationship?

What we are measuring here is, I believe, trust. The deeper the relationship, the greater the trust, the more willing the client is to put all his or her eggs in one basket.

The strategy then becomes: get as many accounts open as soon as possible.

If you have not started doing that yet, start with clients who became clients four years ago. They would appear to be most vulnerable.

Marketing Objective

According to me, the objective, purpose, mission, call it what you will of client marketing is: become or remain sole provider for all clients who are decent people and follow advice.

Of course you want to deal with pleasant people who do what you tell them. Who wants to struggle all day with sour, unpleasant people who argue instead of taking your advice?

Of course you want all the assets. You won't rest easy knowing your biggest client, Velda Oldebucks, is having her hand held by "that nice young woman at the bank." And your heart certainly skips a beat when another big client, Bob Barking, tells you he bought 100 bonds from a pleasant young man at MerrillMorganUBSWellsPartners.

You want all the assets and you want to keep the client forever.

Ultimately, this means if the client's stupid brother-in-law Wayne says, "Kelly, I think we should put some money in a new franchise, Lifetime Tanning and Body Sculpting. What do you think?" Kelly replies, "Sounds interesting. I'll check with Mel first" (Mel being you, of course).

I have been encouraging clients to strive for "sole providership" for a long time.

You can do far worse than start with the clients in Year 4 and "Find all outside assets held by the client so they can be moved to FA management."

The PriceMetrix study said it more scientifically: "when advisors (often correctly) surmise that they have only a share of a client's investable assets, they should endeavor to increase their share, since doing so improves the prospect of retaining that client."

— Check out The Best Minimum Account Size: Zilch on ThinkAdvisor.