Curian Makes A Common Mistake In Explaining A Drop-Off In Referrals

A volatile or declining market is too easy and superficial an explanation why clients are not referring.

Curian Capital, LLC, a money management platform, just released its annual survey of 1,000 advisors. In it, 77% of advisors listed acquiring new clients as their top goal for the year. The survey also noted that advisors are receiving fewer referrals than they did last year.

The story about the survey noted comments by Mark Schoenbeck, senior vice president of marketing for Curian. “Clients' reluctance to urge friends or family members to work with their adviser is a function of the negative news and opinions about the economy” the story reported.  “That tends to make them feel less likely to want to go out on a limb by suggesting that their friends work with their adviser, according to Mr. Schoenbeck.”

I disagree. And looking more deeply into the possible reasons for the drop-off in referrals can lead to a strategy less reliant on market conditions.

Clients risk their relationships and reputations when they make a referral to a financial advisor. However, I do not believe that the ups and downs of the market elevator those risks - unless the advisor has established that delivering returns is their primary value proposition. And I believe many advisors have inadvertently done exactly this by failing to consciously design and communicate a better value proposition.

If you represent a solution or experience that your ideal client needs or wants, assuming the solution is not consistently positive portfolio returns, prospective clients will be attracted to that regardless of market conditions. Clients and centers of influence will continue to mention you when they meet prospective clients who are looking to solve the problem you specialize in. Whether the market is up or down should be of little significance to your ability to deliver on your value proposition.

If you find referrals disappearing when the market gets volatile or declines, don't blame it on the market. Take a look at your value proposition instead. It probably needs rewriting or a better communication plan.

Update:

Since posting this article I had a conversation with Mark Schoenbeck. It turns out he believes strongly in target marketing for financial advisors and how that can help in attracting referrals. Mark fell victim to the risk all of us face in the public realm: you may talk with a reporter for 20 min., and what gets published might be a single sentence that doesn't necessarily relate to your point.

My point above holds true. If you fail to identify yourself with a value proposition that goes beyond portfolio returns, you run the risk that your client will assume that positive returns are your value proposition. Mark, and Curian, believe that. The results of their survey update for this year drives home how important that is.

Reason #27 To Get Client Feedback – Your Clients Don't Like "Fee-Based”

Advisors who don't seek client feedback don't know what their clients want, they know what the advisor thinks they should want.

We all know that fiduciary is better than broker, and so naturally our clients would give us referrals because we are fee-based and not commission-based, right? Of course. And that's why it's a great idea to attract clients by talking about how we charge fees.

Well, that makes a lot of sense to most of us because we tend to talk about our marketing with other people in the industry and not with our clients and prospective clients. As it turns out, clients don't like fees and they don't like to be reminded of those fees. So, when Sullivan and Northstar surveyed investors on their reactions to different words we use in our marketing, for the 2012 update in their "Rebuilding Investor Trust" series, they found that 64% of respondents had a negative reaction to the phrase "fee-based."

Since fiduciary is clearly better for clients, you might also be surprised to learn that in a survey done last year by Cerulli Associates, about 47% of 7800 households surveyed preferred paying commissions compared with 27% that would rather pay a fee based on assets.

Of course, if you had asked your client advisory board to evaluate your marketing you probably would have heard about this already. Who better than your best clients to help you understand the most important messages to communicate in your marketing? This is the group with the clearest idea of what is most valuable about what you do, and their language for describing it probably differs from yours. It is possible that your clients consider the fact that you are "fee-based" to be one of the more important things that distinguish you from other advisors, but I suspect they will talk more about what you do for them rather than how they pay you.

One of the biggest mistakes we make in marketing our practices is to dream up what we will promote and what we will emphasize without input of the people we are hoping to attract. Engage your clients in an ongoing conversation about your value, and you will find you have a much clearer idea of what to say to attract more clients like them. And you can work together to develop what they can say to other people to get you referrals.

How to turn a down market into client loyalty

The stock market dropped 5% yesterday, wiping out gains for the year. While this is bad for portfolios, it doesn't have to be bad for your client relationships.

Will the market bounce right back, or continue going down? Is this the beginning of the next bear? Who knows.  In terms of the growth of your practice, it may not matter. You do not have to be slowed down by the direction of the market. The fact is the best and most successful advisors add clients in down markets.

I don't mean to suggest that it will be pleasant. Is going through a down market easy? No. Can it be rewarding? Absolutely.  Everyone looks like a genius in an up market. The professionals standout when things are rocky. How do you build and strengthen client relationships when the markets are bad? Here are some suggestions.

1. Review your client portfolios and make sure you are prepared for a market downturn. Confirm that positions and allocations have not gotten out of whack because of market gains over the past couple years. Evaluating how those portfolios might respond if markets or interest rates changed suddenly or significantly, and make any adjustments you think appropriate.
2. Be ready to describe to your clients how you have prepared for the possibility of a market change. If the markets begin moving against you, have a communications plan that includes mass e-mails or letters and the conversations you will have individually in client appointments.
3. If the markets continue their slide, send out a communication to all clients. Let them know you are watching what's going on, and are prepared to make any changes that are appropriate when the time comes. One of the more interesting things I have learned from working with client groups is that they have little understanding of all the work you do on their behalf when they are not in front of you. Let them know. You don't necessarily have to see them more frequently when times are bad but they need to understand that you are always diligently looking out for their best interests.
4. Bring your clients together. If you have put off or neglected an advisory board, or have been considering starting one, now is the time to get it on the schedule. Engage your clients to tell you what they worry about. It may not be what you think. Get there guidance on the best ways of keeping in touch with the markets turned bad again. Whatever their concerns, get them to tell you what kind of communication with most effectively addresses their worries. Would it be letters, individual reviews, or group meetings? Should you be discussing their portfolios, or showing them the impact of a downturn on their financial plans?
5. Act on their advice. When you implement your communication strategy, refer to your advisory board. Let all clients know that there is a group of clients you are actively engaged with to help you understand what kind of response would most effectively address what's on their minds.

Many of the advisors I worked with in 2001 and 2008 were drained and exhausted by those difficult markets. The ones who kept in touch with their clients most effectively were rewarded for all that additional work with larger practices. Engaging your clients when things are bad will make your existing client relationships stronger and attract new ones.

IPI study: advisors think their service is better than their clients do

The Institute for Private Investors released a study that, I believe, discloses some shocking statistics. If you are concerned about attracting and retaining clients, the study is something you must reflect on. Although AdvisorOne somehow translated the results into the headline "Wealthy Investors Say They're Happier With Their Advisors" reading the study, Both Sides Now, set off alarm bells for me.

The lead statistics is that 63% of ultra high net worth investors are fully satisfied with their advisor relationship. I don't know what your high school experience was like, but anything below 65 was a failure when I was there.

Shockingly, 95% of advisers said their clients are fully satisfied. So, 32% of advisors think there clients are happier than they really are. Is it any wonder we are disappointed with the number of referrals we get?courtesy iStockphoto

Reinforcing that overall statistic, the study found, among other things, that 63% of investors agreed “my advisor produces results in concert with my

family’s goals and risk parameters,” with 17% disapproving of their advisors’ performance. An SEI study I recently wrote about on Advisors4Advisors highlighted the importance clients place on their advisors’ understanding their situation and needs.  This specific kind of failure will lead pretty directly to losing the relationship. Further, a significant portion of those investors do not believe their advisors are utilizing their full resources to the clients’ benefit or providing adequate access. If you are the advisor to one of those clients, your relationship is at risk.

Fortunately, the study also identifies the direction to a solution. “We are seeing a clear trend toward engaging in more of a partnership with the advisor, a natural evolution as investors learn more about due diligence in the aftermath of the financial crisis,” reports Charlotte Beyer, IPI founder and CEO. “Advisors have longer lasting relationships with investors who wish to be a partner in a dialogue.” This reinforces Julie Littlechild's finding it Anatomy of the Referral: when clients believe there feedback is sought and implemented, they are more engaged, satisfied, and loyal.

The message is clear – involve your clients in a dialogue and discover how they really feel about your service. If you can uncover client disappointment on how well you leverage your resources for them, on access to you, or on the results to deliver, you have the information you need to give them the experience they desire.