How Proactive Advice Increases Client Loyalty

Dan Richards

I received several emails commenting on last week’s column on how a financial advisor keeps clients motivated and on track. One came from Robert, a veteran advisor, who wrote about his philosophy of bringing new advice to the table and how this sends a positive message to clients.

Over the past five years, I’ve acquired a number of clients who’d been put off by passive advice from their previous advisors — as one client put it, “The guy I was working with took ‘buy and hold’ and turned it into ‘buy and ignore.’” Every time I talk to clients, whether in person or on the phone, my goal is to recommend a change to their account that will leave them better off. It’s obviously got to make sense in terms of transaction costs and tax consequences, but I find my clients appreciate that I spend my days looking for ways to improve their portfolios. And not only does this get my calls returned faster, but it buys patience and keeps clients hanging in when markets get tough, because they know that we’re not just going to sit there getting beat up without trying to do something about it.

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Dan Richards
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Not every advisor subscribes to Robert’s active approach to portfolios. Of course, holdings in mutual funds, wrap accounts and separately managed accounts are regularly tweaked, but that happens without any awareness on the client’s part.

The difficulty lies in how clients interpret “stay the course” recommendations, especially in tough markets. All too often, they view advice to stand pat as the easy way out for their advisors, representing passivity and lack of effort on their part. Unfair? Of course – but that’s how many clients react unless you demonstrate the research behind your advice. You can certainly have clients walk away feeling good about staying the course, but you have to typically work harder to get clients to buy into that than to making shifts in their portfolios.

Given this reality, here are five proactive conversations you can have with clients:

  1. Provide an update on portfolio holdings: For advisors using third-party managers, it’s important to remember that no news is not good news. Unless you tell clients how the portfolios they own are being repositioned, many will assume that nothing is happening. It makes sense to offer interested clients a quarterly summary of shifts in sectors and top holdings in the funds that they own.