Reasons Clients Leave Their Wealth Manager

June 18, 2019 - Stephen Van de Wetering

Poor performance is not the only reason clients leave their wealth manager, but poor performance is often the stem from which problems occur in other areas, convincing clients to take their assets elsewhere.

As a wealth management firm, you’re one of many, and in the age of the Internet, it’s easier than ever for a client to research the thousands of firms in this world that are competing for their business.

And with so much financial content on the web, wealth managers no longer have the monopoly on information they once had.

Poor performance will be less and less tolerated as clients have a better gauge to judge the results.

What’s more, clients know they have options when it comes to who manages their money.

Why Clients Leave Their Wealth Manager

Poor Performance

This is basic. Delivering low or negative returns for too long, especially when the client feels like time is no longer on their side, will eventually result in a lost client.

It doesn’t matter how down-to-earth and personable you are as an advisor. They hired you and your firm to deliver results.

The question is, why is the performance bad? What can do you about it?

Do you spend too much time on non-investment related work? Do you need better tools to manage the data and help your decision-making?

High Fees

If poor performance is bad enough, then charging high fees is adding insult to injury. Your fees should be reasonable relative to the performance.

We understand that there is intense downward pressure on fees, and it’s hard for small- and medium-sized investment firms to lower their fees to compete with the low levels that the Vanguards and BlackRocks of this world can afford to charge.

In this industry climate, there will be some give-and-take. Your fees might have to be lowered, but you can also look at cost-cutting in other areas to offset the lower fees.

Lack of Trust

Are you selling investment products that benefit you before they benefit the client? Did you overpromise on the returns, but underdelivered?

If you find it easier to make money by bringing in new assets rather than growing the existing base through good investing, then you’re destined to lose the client. In the short term, you’ll generate revenue, but in the long term, that strategy will fail when the client sees low returns and considering taking their assets elsewhere.

Make sure your interests are aligned with the clients’. You profit when they profit; you lose when they lose.

Bad Communication

Not keeping regular contact with your clients sends a message either that you “don’t care” about them, or worse, you’re hiding bad news from them.

If you’re not hiding bad news, great! Give the client a call, invite them into the office, listen if their investment needs have changed, and modify their investment strategy if necessary.

Remember when talking to the clients, keep the language simple. The client is not expected to be the investments expert; you are.

Avoid complex industry jargon. Be prepared to explain your pie charts and graphs in very layman’s terms. The only thing the client understands is that you will help them make money; speak to that level.

If you are “hiding bad news” (e.g. very poor performance), be honest and open about it. Think of it like “keeping the lid on a volcano”: the longer you suppress the volcano, the more violent the eventual eruption will be.

The client will be upset either way when they found out the performance is bad, but things will be a lot worse if they discover you deliberately avoided telling them the bad news. Instead of a graceful departure, the client could take anger to the Internet and smear your firm’s reputation with 1-star reviews and very damning testimonials.

As the wealth manager, it is your job to lead the communication. Never interpret client silence as a vote of confidence in you.

Give Your Clients Reasons Not to Leave

Bad performance is a root cause for why clients leave wealth managers, and from that stem other reasons for departing: high fees, lack of trust, and bad communication.

Clients are well aware of your competitors. The Internet has made it easier to find them and their positive reviews. It’s also easier than ever for an angry client to leave poor online reviews of your firm, which could result in an unknown amount of lost business. It’s more important than ever to do things right for your clients.

If performance is poor, take a look at your existing practices. What can you do to devote more time to researching and investing? Consider outsourcing operational activities or leveraging automation technology.

What tools can you adopt to help you become better at investing? Think about getting a turnkey investment management platform.

Keep fees in line with clients’ expectations, and be prepared to cut costs in other areas to mitigate lost revenue from lower fees.

Build trust by keeping lines of communication open. Be transparent; staying silent when problems arise will only make problems worse.

Being a wealth manager in this day and age is one of high risk and high reward as it relates to the clients. Angry clients can make it known to the world why they don’t like you, potentially driving away new business.

Likewise, happy clients will tell the world why they love you, and you’ll be in position to land new clients more easily.

Do what it takes to keep your clients happy, and you’ll be more than just one of the many wealth management firms out there.