Poor Communication Dents Profitability

Failure to communicate effectively with clients and their families will likely damage a financial adviser’s long-term business success, according to the Financial Planning Association (FPA).

A new study from the FPA Research and Practice Institute suggests the financial advice industry has become increasingly competitive in recent years, putting more pressure on advisers to answer client questions and service demands quickly. Advisers who are not differentiating themselves in their client communications are not reinforcing their value proposition, warns Lauren Schadle, executive director and CEO of FPA. This can mean losing out on business not just from an existing client, but from that client’s spouse, children and other family members.

The study suggests the most successful advisers communicate with clients on a daily basis (see “Investors Want Responsive and Transparent Advisers”). It can challenge many independent advisory firms to meet such rigorous communication demands, FPA researchers admit, so it is increasingly critical for advisers to be efficient in communications and service delivery efforts.

Key findings suggest that many advisers are not making a big enough effort to communicate with clients’ spouses and partners, or with their adult children. FPA researchers say both of these potential client segments can have a major impact on the long-term profitability of advisers’ businesses. The study shows that currently, about half of all advisers (48%) say that fewer than three-quarters of their clients meet with them as a couple. Advisers may be doing themselves a disservice by not insisting on meeting with their clients and their spouses/partners, the research suggests.

A mere 42% of advisers are proactively trying to attract younger prospects, the research suggests, and even fewer (34%) are proactively working to build relationships with the children of existing clients. Without a focus on building relationships with the younger family members of existing clients, many advisers are going to fall short on building profitable businesses for the long-term, FPA says.

“To offset client and asset attrition inherent in [older client] group, advisers would be wise to build relationships with that group's survivors, and to diversify their practices with younger clients to ensure the long-term viability of their businesses,” says Valerie Porter, director of the FPA Research and Practice Institute.

Researchers find 68% of advisers gather feedback from clients in some form, with “informal feedback” being the primary method. Female advisers and younger advisers (under age 40) are somewhat more likely to gather feedback from clients (77%) compared with male advisers (65%). Another 71% of advisers say that they segment their clients for communications purposes.  A vast majority (82%) of advisers who segment their clients also tier their service levels.

According to FPA, 56% of advisers have formally defined service standards in place, which may include frequency of contact provisions or limits on response times for client queries. Female advisers are more likely to define service standards (66%) compared with men (53%). At the same time, only 30% of all advisers indicate that they review and reinforce service standards on a regular basis, and another 44% say they communicate service standards when a client starts to work with the firm.

A full copy of the “2014 Trends in Client Communication Study” is available here.