Why Investors Leave Their Advisors and How to Improve Retention (2024)

It’s a business fact of life that clients will come and go. However, natural turnover rates will increase or decrease due to your approach toward client satisfaction. If you aren’t actively working to keep clients happy and attract fitting prospects, you may find yourself struggling to make ends meet.

As a financial advisor, your goal should be to minimize attrition. If you want to lower your churn rate, you’ll need to first understand why clients leave advisory firms and what strategies typically improve retention rates.

How Often Do Clients Switch Financial Advisors?

In spite of the pandemic—or perhaps because of it—a recent study showed that client retention is at an all-time high for financial professionals. However, as the environment normalizes, it’s important for financial advisors to be ever mindful of how quickly sentiment can change. Clients always have a choice when it comes to whom they work with.

This is particularly true in the early stages of the client/advisor relationship: One study indicated that, on average, of those clients who leave to find a new advisor, 20% do so within the first year and 25% leave within the second year.

There are many reasons a client may leave their advisor: a lack of connection, a life event, and poor communication are just a few that are often cited. With that in mind, consider these practice management steps to ensure a superior client experience.

Let’s take a deeper dive into the reasons clients leave and how you can improve client retention.

6 Common Reasons Clients Leave Financial Advisors

While each client is different, there are many shared expectations when it comes to service and financial advisor interactions. Here are six top reasons clients left their previous advisor.

1. Infrequent or Inadequate Client Communication

You certainly want clients to be able to reach out to you when they have questions or concerns, but is that the only time you are connecting with them? It’s great to be responsive, but you also need to be proactive with an outreach strategy. Consider these telling statistics from a recent survey:

• Three out of five clients said that more frequent, more personalized contact with their advisor would give them more confidence in their financial plan.
• 85% would consider both their advisors' frequency and style of communication when deciding to retain their services.
• 75% of clients want their advisor to send them personalized updates.

The takeaway? Communicate early, communicate often, and communicate in a way that resonates with your clients. Make every effort to ensure your clients feel you are speaking to them directly—and not everyone on your email list.

2. Lack of Timely Follow Up

People are busy and tend to lose interest and motivation if you wait too long to respond to a question or inquiry. Your lack of follow-through could lead to clients searching for their own solutions—ones that don’t include you. Plus, people feel unappreciated when their requests go unanswered.

As a financial advisor, you are working with clients’ money and financial future. Many clients will feel anxious if they have to wait to hear back from you or can’t see when you complete a transaction or task they requested. No matter the service provider, when a client is paying for a service, they’d like it delivered in a timely manner. This is especially important when you are following up on new clients and referrals because you are making a first impression.

3. Misunderstanding of Client Goals

There’s often a disconnect between what clients want and what financial advisors deliver. One study showed that over 90% of clients say they want estate planning advice from an advisor, but only 22% are receiving it. While 89% percent of clients want tax-planning advice… 25% receive it. And even though 87% want charitable or philanthropic planning services, only 2% get them from their financial advisor.

It seems only logical that they would get these desired services from their financial planner or advisor, so where’s the disconnect?

Today’s advisors need to take a more holistic approach toward financial services to support their clients. Many clients are looking for more than just investment advice and portfolio management.

To reduce client attrition, it’s important to understand what your clients expect when you begin working with them, and it’s wise to revisit those expectations throughout the relationship.

4. Unexpectedly Poor Performance

While investment performance is important, most investors understand that macro forces are often in play when it comes to returns. So, unless the client’s returns are completely out of line with comparable portfolios, the issue isn’t the numbers themselves; the issue is that your client was blindsided by the numbers.

Managing client expectations and providing them with a clear understanding of how markets work, historical performance, and current economic conditions can minimize this issue. Don’t overpromise on things you don’t have control over.

Be proactive in establishing a clear strategy and keeping your clients informed about common market volatility trends. If things start to go haywire, reach out to reassure your clients and remind them of the goals they have in place and the ways you’ve prepared for a downturn.

5. Sub-Standard Technology

Thanks in large part to efficiencies and convenience created by online sites and vendors, clients have high expectations when it comes to the user experience. A poorly designed website or non-intuitive tools can be a strong turn-off for your clients.

A recent survey showed that 44% of clients were frustrated that they couldn’t view all their investments in one place. Nearly half of clients (49%) say they select firms and advisors based on the digital experience they provide. Clients want client portals that are easy to navigate and load quickly.

6. Unexplained or High Fees

Savvy clients know that there is a wide range of fee models available to them. The fees they pay should align with the services they receive. The standard of care regulations surrounding fiduciaries is an effective barrier to misunderstandings around fees.

However, this doesn’t mean you should tank your prices to try and appease low-budget clients. If your value proposition is well thought out and targets the right audience, you may choose to be on the high end of advisor fees. A frank discussion at the beginning of the client/advisor relationship and ongoing fee transparency should help to avoid issues.

If you use tools or platforms to help support your services, then you should be ready to explain those line-item fees and promote their value to your clients.

Build Stronger Client Relationships with These 4 Retention Strategies

Understanding why clients leave is one thing. Preventing the issues that prompt a move in the first place is another.

It’s easier to preemptively address potential pain points with clients than it is to undo damage that has already occurred. A stronger relationship with your clients will help you know what’s on their minds.

Tip 1: Create a Comprehensive Communication Plan and Stick to It

The bottom line is that most client satisfaction issues come back to communication. But communication isn’t just about talking more; it’s about saying the right things at the right time and truly listening to their concerns.

• Make sure your clients know you are always available to them.
• Create a strong foundation by implementing a thorough communications plan.
• Engage your clients regularly to help keep you top of mind for all of their financial planning needs.
• Ask questions and follow through after discussions to show you are actively listening.

Tip 2: Don’t Make Your Relationship About Performance

At the outset, position yourself as a provider of advice and guidance. Yes, asset management and performance are a part of that. But your main role is to help your clients navigate market ups and downs and to guide them through the various stages of their wealth management journey. This way, you are not hanging your hat on something that you can’t control, and your clients aren’t looking at you through that one lens.

• Discuss long-term financial goals and not just daily (short-term) positioning.
• Create a personal and meaningful relationship that extends beyond your services.
• Offer additional services that bring value beyond investment management.

Tip 3: Reach Out to Clients for Non-Account-Related Engagement

Clients want to know they are more than a portfolio to you. They want to know they matter to you on a personal level. It’s important that you demonstrate this, and not just around the holidays. Expanding the foundation of your relationship will strengthen it.

• Host a client appreciation event.
• Send them a note or card for special life events, such as their birthday or anniversary.
• Offer to speak at their next PTA or book club meeting.
• Make a contribution to a charity that’s important to them.

Tip 4: Work with a Firm That Offers State-of-the-Art Technologies

Working with a firm that has the scale and resources to deliver innovative technologies—along with consultants to help you maximize their offerings—is the best way to ensure you have access to the seamless tech experience your clients’ demand.

At AssetMark, we offer the tools, business development, and client engagement resources you need to establish and maintain productive client relationships. To learn more about our offerings, contact our team today.