This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
See Cramer's multi-million dollar portfolio for FREE and get his new book Get Rich Carefully! Learn More

Financial Advisors Struggle to Earn Client Loyalty

By Hal M. Bundrick

NEW YORK (MainStreet) For the first year, your financial advisor is on top of his game. With regular meetings, and frequent phone calls, you feel well taken care of. But as time passes, the meetings become once-a-year at best, and the phone calls come only when some account action is required. You hear more from the assistant then from the advisor.

It's a common pattern of financial advisor service and likely leads to increasing client attrition. PriceMetrix, a practice management software provider, examined its database of 7 million investors and nearly 40,000 financial advisors, and found that the risk of having a client leaving is the highest during years two through four of an advisor and client working together.

The relationship between client and advisor begins with a "honeymoon" period during the first year when client retention is 95%. Over the next couple of years loyalty slides, with the probability of retention dropping to just 74% before leveling off after year four.

"In striving to retain clients, advisors should keep these different stages of each client relationship in mind and redouble their efforts to demonstrate their value to clients during the critical second through fourth years of their relationships," says Doug Trott, president and CEO of PriceMetrix.

The most successful advisors (in the top 10% for client retention) retain over 98% of their clients in any given year, while the least successful retain only 84% of their clients. PriceMetrix says advisors with the greatest account churn must replace clients at 8 times the rate of the most successful advisors, just to stay even.

Advisors with less-affluent clients struggle the most with turnover. According to the study, client households with $100,000 in assets have a retention probability of 87% -- compared to a household with $500,000 in assets or more having a retention probability of 94%. However, client loyalty does not grow significantly beyond this level of affluence. Households with $1 million in assets have a retention probability of 95%.

Fees play a significant role in client retention, with loyalty impacted on both ends of the pricing scale. Advisors who price relatively high -- or even relatively low -- are less likely to keep their clients. The "sweet spot" for asset-under-management fees seems to be between 1% and 1.5%.

"These results suggest that advisors who price their services relatively low may be undercutting the perception of their value among their clients," says Trott, "while those who price relatively high may be creating insurmountable client service expectations."

And older clients are more likely to stay with their advisors than younger ones, according to the research. A 30-year-old client has a retention probability of 82%, a 40-year-old client has an 87% probability and a 50-year-old client has a 90% retention probability.

"These findings should give pause to those advisors who might expect or hope that pursuing younger clients will produce long term client relationships," says Trott. "While younger clients may have longer time horizons with respect to their financial plans, the data do not support the claim that they intend to spend many years with one advisor."

Written by Hal M. Bundrick for MainStreet

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
DOW 16,501.65 0.00 0.00%
S&P 500 1,878.61 +3.22 0.17%
NASDAQ 4,148.3380 +21.3710 0.52%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto
Advertising Partners

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs