I was in a meeting with an advisor recently when the latest economic indictors flashed across the TV screen.
“Watch this,” chuckled the advisor as he turned off the TV and comically waved his pen over his telephone like a magician waving his wand.
Sure enough, the phone rang in a few seconds. The advisor paused, sighed, and reluctantly picked it up, almost as if he was too tired to talk.
It was a client call, so I excused myself, but I could tell that my advisor friend was tired of having to constantly play defence and calm his clients’ concerns in these volatile markets.
Market fatigue is understandable at a time of unprecedented cash flow reductions and negative portfolio performance. Advisors are battling every day, using much of their time and energy to limit redemptions. So it may seem out of touch to consider working on your business at a time like this. But strategic planning is exactly what you need right now to help you re-energize your business and grow your book.
Based on my visits with hundreds of advisors across the country this year, I believe there are three things you can do right now to help you emerge from this market downturn with positive momentum.
1. Overcommunicate to those who are most impacted.
You’ve heard it before. In times of bear markets, clients need to hear from you. Be proactive. According to research from Prince & Associates, Inc., investment advisors who maintain regular contact with their clients fare better in terms of client retention and new assets than those who avoid communicating bad news.
Do everything within your power to serve your most valuable relationships. Given that you have limited time, who deserves additional time and energy? Is it any and every client? There’s overcommunication. And then there’s smart overcommunication. Those advisors with large books can e-mail blast their client list with market updates — which is effective to some extent — but we all know it’s the personal touch that will retain accounts during this time.
You have to make strategic decisions about where your time should be spent. Ask yourself who will be most impacted by this crisis. For most, the answer will be those clients at or close to retirement. Many of your top clients will fall into this category, as a client’s maximum wealth is generally between the five years preceding and following retirement. These clients may need to adjust their plan. Those that are more than six years from retirement should have enough time to recover or adjust without major challenges.
The only way you’ll have the time and energy to attend to your top clients is to tone down the sheer volume of unprofitable clients. The reality is that your current revenue and future growth are much more dependent on the overall satisfaction of the top 10% of your book rather than the bottom 30%.
I’ve found, with little exception, that if you get rid of the bottom 30% of your clients by number, you will lose only 1% of your after-tax income. Check your bottom 30% of clients by number and do the math. Consider the 80-20 rule: 80% of your revenue is generated by 20% of your clients. This relationship is not only alive and well in the advisor business, it is thriving.
The bottom line: Do everything within your power to stay tightly connected to your most valuable relationships.
2. Change the conversation.
This is not an attempt to sidestep the current market reality. Instead, consider refocusing your conversations on client goals and their overall progress towards those goals. Advisors who are goals-based and are using their meetings/quarterly reviews to reinforce their goals-based approach are weathering this storm better than those who have been performance-based.
This is not to say that you should ignore the pressing questions about the market environment or current economic crisis, but do not dwell on them. Most of your clients are dissatisfied with the absolute value of their accounts but this is a symptom not a cure. What they ultimately want to know is whether they are going to be okay. I have spoken with high-net-worth clients who will have more than enough money to retire, but they are still worried about how the credit crisis will impact their portfolios.
Goal-based wealth projections are invaluable in calming client concerns in these markets, and will go a long way to providing them with the clarity they need. Instead of leading with fund performance against various benchmarks/indexes, advisors should lead with goals-based reporting that shows their progress towards a specific objective. The ability of advisors to demonstrate whether or not they are on track is far more valuable than fund performance comparisons.
The bottom line: Make sure you are getting credit for the positive returns you have generated throughout the life of the client relationship and focus them on their needs rather than the markets, which you cannot control.
3. Show your value.
Investment advisors earn their keep at times like this. Make sure you get credit for the extra work you put in to keep clients on track. Through your quarterly meetings and communications, make clients aware of the value-added support they can expect from you during these tough times.
One advisor out west told me that he swears by his client engagement roadmap, which not only helps him do great work for his clients, but also makes sure they know about it. Another way he shows his value is by delivering quarterly wealth management reviews that earn the loyalty of his top clients.
The bottom line: A review reinforces clients’ big picture plan and reminds them of the portfolio performance the advisor provided during the bull markets.
The worst thing you can do right now is neglect client communications and strategic planning in your business.
There are no secret tricks or magic wands that can help us. However, reinforcing your plan for your clients and giving them clarity on their financial stability will go a long way in countering client redemptions and positioning your business for growth.
Keith Pangretitsch is the director of Private Client Services at Russell Investments Canada.