Success Factors for Financial Advisor Client Retention

To grow your advisory business, focusing on your financial advisor client retention is critical for success. Here's how to navigate what to do and why.
financial advisor client retention

People often say that the only things certain in life are death and taxes. But if you’re a financial advisor, you might add client attrition to that list, which is why financial advisor client retention is so important in growing your business.

It’s an unfortunate fact of life that some clients will inevitably move on for many reasons. Maybe they’ve achieved their financial goals and no longer need your services. Maybe they’ve retired or changed jobs and are no longer in your target market. Or maybe they’re just not happy with your level of service. Financial advisor client retention is an issue always close at hand.

Whatever the reason, client attrition is a reality that all financial advisors must face. The key is to minimize it as much as possible so that it doesn’t have a major impact on your business.

Why Financial Advisor Client Retention Is Important

Here are 15 reasons why financial advisor client retention is critical to your firm’s success:

1. It Costs Less to Keep a Client Than to Acquire a New One

There’s no question that it costs more to acquire a new client than to retain an existing one. According to estimates, it can cost five times as much. So it just makes good financial sense to focus on financial advisor client retention.

2. It Takes Less Time to Service Existing Clients

Servicing existing clients takes less time than acquiring new ones. This is because you already have a relationship with them and know their needs and preferences. With new clients, you have to start from scratch to build a relationship and understand their needs.

3. Existing Clients are More Profitable

According to a study by Bain & Company, “increasing customer retention rates by 5 percent increases profits by 25 to 95 percent.” This is because it costs less to service existing clients, and they tend to spend more with you over time.

4. Existing Clients are More Loyal

Loyalty is important in any relationship, and it’s no different with financial advisors and their clients. Research has shown that loyal clients are less price-sensitive and more likely to refer new business your way.

5. Retention Improves Your Brand

When clients are happy with your services, they’ll tell others about you. This word-of-mouth advertising is invaluable in terms of building your brand and reputation. On the other hand, if clients are unhappy and leave, that can damage your brand just as much.

6. Retention Helps You Attract New Clients

As we just mentioned, happy clients are more likely to refer new business your way. So financial advisor client retention can help you attract new clients. It’s a virtuous circle – the more clients you retain, the more new clients you’ll attract.

7. Retention Increases Efficiency

If you have a high client attrition rate, you constantly have to acquire new clients to replace those who have left. That’s not a very efficient use of your time and resources. On the other hand, if you have a low attrition rate, you can focus on servicing your existing clients and growing your business in other ways.

8. Retention Reduces Risk

Acquiring new clients always involves some degree of risk. You never know for sure whether they’ll be a good fit for your firm or if they’ll stick around for the long haul. When you retain existing clients, you reduce that risk.

9. Retention Improves Employee Morale

Your employees are the backbone of your business, so it’s important to keep them happy. They’ll be more motivated if they feel like part of a successful organization with a bright future. Client attrition can damage employee morale, so employee retention is critical.

10. Retention Gives You an Edge Over the Competition

If you can retain clients better than your competitors, that gives you a significant competitive advantage. It’s one of the key differentiators that will help you attract and retain more clients.

11. Retention Helps You Weather Economic Downturns

In good economic times, it’s easier to acquire new clients. But in tough times, retention becomes even more important. People are more likely to stick with their current financial advisor when the going gets tough.

12. Retention Strengthens Your Negotiating Position

If you have a high retention rate, that gives you more bargaining power when negotiating with vendors and other partners. They’ll be more likely to give you favorable terms because they know you’re not going anywhere.

13. Retention Allows You to Focus on Your Core Business

If you constantly have to acquire new clients, that takes time and energy away from your core business. By retaining existing clients, you can focus on what you do best.

14. Retention Makes You More Resilient to Change

If you have a diversified client base, that makes you more resilient to changes in the market. For example, if one industry is struggling, your business will still be able to thrive because you have clients in other industries.

15. Retention Helps You Achieve Your Goals

Retention is important because it helps you achieve your business goals. For example, if one of your goals is to grow your business, retention is critical because it allows you to reinvest in your business and expand your client base.

How to Improve Financial Advisor Client Retention

Creating a happy customer takes a bit of effort, mostly around fluid communication. Follow these tips to increase your financial advisor client retention numbers.

Get to know your clients

Getting to know your clients personally is one of the best ways to build relationships and improve financial advisor client retention. Take the time to learn about their families, hobbies, and goals.

Communicate regularly

Regular communication is key to retaining clients. You need to keep them up-to-date on what’s going on with their investments and financial plan. But don’t overdo it – you don’t want to bombard them with information.

Be responsive

When clients have questions or concerns, you need to be responsive. Return their calls and emails promptly. Nothing frustrates clients more than feeling like they can’t get ahold of their financial advisor.

Provide value

If you want to retain clients, you need to provide them with value. That means more than just investment advice. It means being a resource for them and helping them navigate financial decisions.

Build trust

Trust is one of the most important factors in client retention. If your clients don’t trust you, they will not stay with you for the long haul. So you need to earn their trust by being honest and transparent.

Be transparent

Transparency is critical in the financial services industry. Your clients need to know that you’re acting in their best interests. They also need to know about any potential conflicts of interest.

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