The Secret to Client Retention

For a long time, I have recommended that before an established agent or advisor launch a prospecting campaign, that professional should put systems in place to strengthen client retention.

Start with this fact: There is no such thing as 100 percent client retention.

Three reasons they leave are:

- - - - Poor advice;
        
        Bad service; and
        
        Poor communications.

Of course, some clients die, move away or divorce. Others simply leave because it was not a good fit.

But there are some other issues that influence retention that you need to take into account.

Before I address those, I should say this: You must prospect or your business will die. There is no such thing as "being done."

But the better job you do with client retention, the less you have to prospect.

Retention Rates: What to Expect

According to a study by the Canadian practice management software firm PriceMetrix: "The median advisor in 2013 retained 94 percent of households. The advisor at the 10th percentile retained only 84 percent of clients, while the advisor at the 90th percentile retained 98 percent."

If you are exactly at the median and have 300 clients, you lost 18 households in 2013. But if you are at the 90th percentile, you lost six. At median level, you would have to have major prospecting going on just to stay even.

One of the most fascinating conclusions of the PriceMetrix study is what I would call a vulnerability window.

"Our analysis indicates that the conditional probability of retention at first decreases only slowly. The probability of retaining a client in the first year is high (0.95 at 12 months). There is a 'honeymoon' period in wealth management advisor/client relationships! The probability of retention decreases between 12 and 48 months — from 0.95 to 0.74. It appears that it is during this time clients determine whether the advisor relationship meets their needs, and if not, they decide to leave. Around the 48-month mark, retention tends to stabilize, with the probability of retention decreasing from 0.74 at 48 months to 0.70 at 60 months… This suggests that clients who have remained with their advisor for five years have by this time elected to remain for the long term."

This suggests a strategy, doesn't it? At a very minimum, it says:

Arrange your database so you can see clients who came on in the current year (Year 1) and through Year 2, Year 3, Year 4 and Year 5+.

Then, focus retention marketing on clients in Year 4, then Year 3, then Year 2, Year 1, then 5+.

The better job you do with client retention, the less you have to prospect. (Photo: iStock)

Here is another key finding: "The data reveal that, as household assets increase, the probability of retention increases. Households with less than $250,000 in assets are notably less likely to remain with their financial advisor than those with greater assets."

More strategy:

Absolutely pursue new clients with more than $250,000
Become sole provider for all clients. (Hint: some of your little accounts are big accounts somewhere else.)

In my view: If a client asks you to help his nephew who has $25,000, should you do it?

Absolutely. Refuse a referral to a small account and you will likely not get a referral to the next one. What's more, 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.

But 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.

Forging Deeper Client 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. Remember, the objective, purpose and mission of client marketing is to become or remain sole provider for all clients who are decent people and follow advice.

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