Increased Client Trust Pays Unexpected Dividends

Data from Cerulli Associates shows advisory practices are migrating away from measuring their value based on their investment expertise.

Cerulli Associates’ new report, “U.S. Advisor Metrics 2018: Reinventing the Client Experience,” strives to provide readers with a more granular understanding of the “intangible upsides of providing an exceptional client experience.”

According to Cerulli researchers, one big benefit of spending more time and attention on managing client perceptions is a strong increase in reported trust in the adviser by the client.

“A great client experience also manifests measurable advantages for the adviser’s practice, including a higher median client size, lower attrition rates, and the ability to move upmarket,” the report says.

The Cerulli research finds that practices that focus on the client experience have a 93% higher median client size compared to the industry average of more than $500,000. In addition, client experience-centric practices have lower involuntary attrition.

“On average, 34% of advisers’ asset outflows are a result of clients passing away, moving to another financial adviser, or transferring assets to a direct/online provider,” the report says. “Among experience-centric firms, however, this type of involuntary attrition accounts for 24% of asset outflows.”

Marina Shtyrkov, research analyst at Cerulli, notes that 65% of financial advisers expect to experience fee compression in the next five years, and 42% attribute this pressure to the growth of digital advice competitors.

“In response to this competitive pressure and recognition of heightened investor fee awareness, practices are migrating away from measuring their value based on their investment expertise, which can more easily be commoditized,” Shtyrkov says. “Instead, they are beginning to think more holistically about the nonfinancial impact they can have on their clients.”

According to Cerulli, advisers can harness the power of their client experience to increase retention, reduce attrition, and generate a strong referral system.

“To do so though, advisers need to restructure their thinking—and their processes,” Shtyrkov recommends. “Of all advisers surveyed by Cerulli, only 30% strongly agree that their practice goes above and beyond to make clients feel special, and that it has a repeatable, consistent client experience.”

How are advisers reforming their practices to be more client centric? Cerulli suggests advisers are more broadly adopting a combination of technology-driven client segmentation, intergenerational engagement within a team-based model, client appreciation, and holistic perspective to deliver an enhanced client experience.

“For now, experience-centric practices are in the minority—but practices that adopt and invest in a client-centric mentality will likely cement their value proposition and engender lasting loyalty from clients,” Shtyrkov concludes.

Information about how to obtain Cerulli Associates research is available here.