More than ever, financial advisors are focusing on their clients by fostering deep relationships with them and putting their needs at the top of the list. My firm's research revealed recently how profoundly this client-centric shift is occurring across our industry. This is great news for advisors - and, obviously, for their clients.
While advisors as a whole are generally more client-centric than they were a decade ago, select ones are using their client-centric approach to maximum effect. These advisors do a superior job leveraging a client-centric business model as a springboard for greater business success and client satisfaction.
We've put together a set of recommendations based on the best practices of the highest-income advisors in CEG Worldwide's latest study. We believe these guidelines can help all advisors move to higher levels of success while serving clients better.
BE A WEALTH MANAGER
Affluent individuals want to work with advisors who provide a comprehensive wealth management experience, getting assistance with the entire range of their financial concerns (not just investments) in the context of a consultative, long-term advisor relationship. It's not surprising, then, that more advisors are calling themselves wealth managers.
But let's face facts: For some advisors, the term "wealth manager" can be just a marketing gimmick. Nonetheless, positioning yourself correctly is a valuable step to capturing affluent individuals' attention and getting them to connect with you emotionally right from the start.
We also found that advisors who earn higher incomes are more likely than those with lower incomes to describe themselves as wealth managers. Among the high-income group of advisors - meaning those earning more than $500,000 per year on average - one-third call themselves wealth managers. Among the moderate-income group of advisors - those earning less than $100,000 a year on average - it's just 9.1%.
FOCUS ON LARGER CLIENTS
This one seems like a no-brainer: CEG Worldwide's research shows that high-income advisors are more likely to focus on more affluent clients. Such investors are the ones for whom advisors can add the greatest value as they address clients' financial challenges (which are typically more complex than those of less-affluent clients). High-income advisors are also much more likely to require a minimum asset size to work with a new client than those in the moderate-income group (51.4% versus 22.7%).
These high-income advisors are being rewarded for taking this strategic approach. Nearly three-quarters of those earning more than $500,000 a year serve at least 30 or more clients with at least $1 million in assets under management. And the vast majority (89.2%) have 15 or more of these clients.
In stark contrast, only 5.5% of the advisors earning less than $100,000 a year have 30 or more clients each with at least $1million in assets, and just 15.2% have 15 or more.
Specialization lets advisors develop valuable expertise to address the specific financial challenges of a select group of clients - expertise that these clients are willing to pay for. Nearly half of those high-income advisors we surveyed said they specialize in a particular type of client; common specialties included retirees, private business owners and physicians.
But only 2.9% of those earning less than $100,000 do so. Specialization also helps advisors build teams - both within their firms and among outside professionals - to provide additional expertise. This, of course, helps foster long-term, client-centric relationships.
High-income advisors reach out to their top clients far more frequently than do their lower-earning peers. Not only do they contact all clients more frequently, they also concentrate on contacting their top 20 clients - those who should be contacted the most. Specifically, 59.4% of the high earners contact top clients at least monthly, compared with 29% of the moderate-income group. The moderate-income advisors were much more likely to contact top clients just two or three times a year (27.1%, versus 8.1% of the high-income advisors).
Many studies have shown that investors prefer to find primary financial advisors through their existing relationships.
Our latest research tells us that the overwhelming majority of financial advisors - more than 95% of all surveyed - rank referrals from other professionals and from current clients as very or somewhat important in sourcing new business. Among the professionals, accountants are most important: 61.7% cited them as referral sources. Next are attorneys at 49.8% and mortgage brokers at 21.3%. (Interestingly, life insurance specialists got just 8.9% of the vote. But some of the most successful referral relationships I have seen are between advisors and life insurance specialists, because these brokers provide an excellent opportunity for advisors to comprehensively address investment management needs along with critical tax and estate planning issues.)
Not all advisors fare equally well, however. A significant number of advisors say that they generally do not receive referrals from other professional advisors. (See chart below.) Relatively few planners overall report that they get a steady stream of referrals from other professional advisors - just 4.1% of the moderate-income group and 12.2% of the high-income group. Yet the moderate-income group was much more likely than the high-income group to not get referrals from other professionals - 43.8% versus 20.3%, respectively.
These numbers tell me that even the top advisors must do better. Yes, it can be challenging to build the types of strategic alliances that yield a steady stream of qualified prospects. But advisors who succeed in doing so typically generate extremely good results - some even getting more referrals than they could possibly serve.
When it comes to the importance of requesting referrals from clients, many advisors have heard the message. A slight majority ask all clients for referrals on a regular basis. This is a big breakthrough from the days when I first started coaching advisors - and learned quickly that most of them never even asked.
That said, some advisors are much more successful at actually getting referrals. Consider that 29.2% of the high-income financial advisors in our study got six or more referrals from their top clients, on average, over a 12-month period. Just 12.3% of moderate-income advisors got that many referrals.
Why the big difference? I believe it's because the high-income advisors are providing a superior client experience, which makes their clients more inclined to refer their friends and colleagues.
Clearly, advisors overall are doing a good job of building client-centric business models. And a select group of them are excelling at many areas of client service - and generating sizable incomes as a result. That said, there is room for improvement in just about all financial advisory firms. We all know the opportunities and challenges we face in trying to build great businesses. It's time for advisors to focus on those client-centric actions that will help them achieve great success in the years ahead.
John J. Bowen Jr., a Financial Planning columnist, is founder and CEO of CEG Worldwide of San Martin, Calif., a global training, research and consulting firm for advisors.