The Magnetic Power of Client Feedback
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Why has there been a reluctance within the advisory profession to actively collect, much less leverage client experience feedback? This article explores this historical avoidance and illustrates how to embrace the opportunities that the new SEC marketing rule affords us.
Many advisors worry about receiving complaints and the impact on their reputation, specifically in relation to BrokerCheck and/or a firm’s Form ADV. Most empathize with this concern, as no one wants to hear that their client is not happy, much less have that complaint memorialized in a public database. But, there are several reasons why collecting feedback is an immense benefit for you and more importantly, prospective clients – despite concerns about uncovering a complaint.
The SEC marketing rule permits the use of testimonials. With this new affordance, advisors must recognize that the competitive landscape has changed. If advisors revisit their stance on client feedback, they will understand why it has become imperative to seek client feedback and utilize testimonials for marketing purposes.
Consumers are paying attention too. Multiple studies show that investors rely heavily on what they read online before they reach out for a consultation. Even if they have received your name from a friend, client testimonials on your website increase the likelihood that they will contact you. A December 2021 study by Financial Planning magazine found that nearly half of respondents had removed advisors from consideration based on what they saw or couldn’t find in their digital footprints.
The absence of reviews will put an advisor in that “removed from consideration” category.
Who’s afraid of complaints, and should you be?
One reason behind the avoidance of client-experience feedback among financial advisors is the fear of uncovering a complaint and the subsequent reporting requirements associated with FINRA and/or the SEC. BrokerCheck is a publicly available database maintained by FINRA, which provides information about registered brokers and financial advisors. BrokerCheck requires advisors to report any complaints of misconduct that they receive in writing from clients. When a client complaint is successfully lodged, it can stay on the advisor's record for five to seven years, potentially impacting their reputation and deterring future prospects.
But not just any complaint goes on an advisor’s “permanent record.” The complaint must specifically allege misconduct on the part of the advisor. For example, a complaint that an advisor was rude or didn’t return a phone call would not need to be reported to FINRA. That type of minor complaint could, however, help the advisor recognize a part of their client experience that should require more focus. (Always be sure to consult with your compliance advisor to receive specific guidance.)
With that clarity around complaints, we come to an important question: Does asking for feedback increase the likelihood of uncovering a complaint? (This fear has contributed to the profession’s historical reluctance to adopt proactive client feedback mechanisms, such as periodic client experience surveys.)
But the opposite is true.
One 2023 study from the Harvard Business Review suggested that proactively asking for reviews reduced the share of extreme (negative) rating scores by 10%.1 In other words, if someone has an exceptionally bad experience with a business, they’re less likely to voice that complaint in an inflammatory manner if the business proactively asks them about their experience.
Reinforcing that concept is a Microsoft study that found that 77% of consumers said they favored brands (consultants) that asked for and accepted customer feedback.2 Those studies make a strong case that the benefits of asking for feedback far outweigh the risks.
Missing out on insights, client retention and referrals
Most industries have relied heavily on client experience feedback to influence their operations and strategy. What have advisors been missing out on? First and foremost, simply asking clients for their feedback improves client satisfaction and builds trust. When advisors ask clients to provide feedback, they’re communicating that they value that client’s opinion and care about what they have to say. Clients feel important when they are involved in shaping your services and offerings. Plus, countless sources have shown that the lack of communication is consistently one of the top two reasons clients leave their advisor.
Studies done by eMoney, Fidelity and several others have shown that by 2030, more than 65-70% of assets will be held by women and investors under the age of 55. This is a huge change in demographics. Why does this matter?
Investors want to be confident that how they feel when working with their advisor matters. But many investors may not openly state what they want or even ask questions unless you encourage them and make them feel safe to do so. A 2022 report by Korn Ferry found that women were less likely to share their dissatisfaction. Instead, they were more likely to just take their business elsewhere without communicating why. By being proactive, advisors have a far greater chance of saving this relationship and keeping clients happy! And, an additional benefit, when they are happy clients, women are four times more likely to refer new business! (Forbes, Nov 2020)
Beyond client satisfaction, most other industries rely on client feedback to uncover insights and drive continuous improvement. Client feedback tells you what offerings are delivering value, and what new offerings need to be brought to market. The best case is when a client can communicate a “wish list,” and the firm can deliver on that list. This virtuous cycle will strengthen client loyalty and attract new clients and referrals.
Why are we confident that feedback and two-way communication works? Julie Johnson’s advisory practice grew by 15% in 2008 and 2009 purely based on referrals, thanks to her consistent, reciprocal-client communication during one of the world’s darkest financial times.
Testimonials are the antidote to complaints
The recent changes in the SEC marketing rule made possible a huge growth opportunity and paradigm shift in the financial advisor profession. But many advisors haven’t taken advantage of it. Many wirehouses and other institutions have the strictest compliance regulations when it comes to the use of testimonials. But several of Whit Lanier’s clients worked through compliance concerns to achieve a positive result. When you bring this initiative to your compliance department, do not ask “if” you can use testimonials; ask “how” you can use testimonials in a compliant way.
One consumer-friendly format for testimonials is online ratings and reviews, often found as an element of the Google Business Profiles for many advisors. BrightLocal, a leading provider of local consumer insights, explored in its 2023 survey how important consumers believe reviews are by industry. This survey found that for financial and legal services, 81% of respondents considered online reviews to be important in their decision-making process.
Perfection not required
When advisors ask for client feedback, they can collect dozens of testimonials for display on their websites. (If you would like assistance with how to approach this conversation with your clients, contact us for ideas.) Consumers have been well trained to look for customer reviews when looking for any other product or service, and they do not expect a perfect record. In fact, Brightlocal’s 2022 data reported that only 5% of respondents consider a five-star rating their minimum to work with a business.
For advisors who have a complaint on their record or are particularly concerned about receiving one, those complaints are given considerably more favorable context when surrounded by positive customer stories. Ultimately, complaints become significantly less important to consumers when paired with a surplus of positive testimonials.
Whether advisors want to reactively minimize the impact of a complaint, or proactively build up an “insurance policy” against the possibility of receiving one in the future, asking for feedback is the right tactic. And, regardless of your motivation, this initiative will strengthen relationships with clients.
The new landscape benefits advisors and prospective clients
Avoiding client feedback is no longer the best solution. The power and influence of positive testimonials far outweighs the risks associated with uncovering the unlikely complaint. Furthermore, now that advisor testimonials are allowed, there is every reason to expect that advisors will quickly adopt online reviews just like every other industry. With an understanding of the regulatory landscape and consumer expectations, the only move that makes sense is to start inviting client feedback and testimonials as soon as possible.
Julie Johnson is a former SVP with UBS and the founder and chief engagement officer of XY Communication. Her focus is helping you to increase engagement with existing clients, prospects and peers by improving your ability to communicate, connect and build trust and loyalty. Others have referred to her as an authority when discussing different generations as well as different genders; what they want/need from their advisors, and within teams, what they want/need from each other.
Whit Lanier is the founder and CEO of Amplify Reviews – a platform focused on helping financial advisors embrace online reviews on their own terms. His previous start-up was the leading healthcare technology vendor for enabling hospitals to publish verified patient ratings and reviews, which by 2021 had processed over 50 million patient reviews.
1 Research: The Pros and Cons of Soliciting Customer Reviews https://hbr.org/2023/03/research-the-pros-and-cons-of-soliciting-customer-reviews
2 Microsoft: 2017 State Of Global Customer Service Report https://info.microsoft.com/rs/157-GQE-382/images/EN-CNTNT-Report-DynService-2017-global-state-customer-service-en-au.pdf
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