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Look back on the industry’s past to move forward with confidence.
There is a problem with some of the metrics used to define success in the advice profession. Research indicates that 93% of clients are satisfied with their advisor and 92% of clients are loyal to them. While useful to some degree, those metrics fall short of capturing the essence of what drives organic growth.
It's not just about retaining clients; it's about creating an advisory practice so compelling that clients are inspired to become enthusiastic advocates.
Organic growth – the holy grail for advisors – is near zero for the profession. For a large portion of advice professionals this is true. But organic growth is thriving, however only in a very concentrated segment. The top 10% of advisors are gaining 28 new households per year. This figure drops precipitously to 12 in the next decile and just seven in the second quartile. Factor in client attrition and this means minimal to negative growth for most advisors.
This elicits an important question: With such high reported rates of client satisfaction and loyalty, why do only a few advisors experience the benefits of client-driven referrals? In part, it’s because the profession relies on the wrong metrics.
The metrics are misleading
Reliance on satisfaction and retention metrics is problematic as it gives advisors a misplaced sense of security about the quality of their client relationships. These metrics tend not to be correlated with net-promoter scores (NPS) and therefore do not accurately reflect the nature of client engagements. A more reliable indicator is organic growth, which serves as a direct testament to the quality of an advisor's value proposition. In looking at the statistics above through this lens, we see that many advisors need to strengthen their value proposition.
When we look at this divergence from a client's perspective, it’s easy to see how recognizing an exceptional experience is elusive. For example, as a metric, satisfaction is inherently tied to expectations, which evolve over time and thus represent a moving target. And while clients may not be able to articulate exactly what a great experience looks like, they unmistakably know when they see it.
Imagine someone who regularly dines at a popular Italian restaurant chain and is consistently content with the experience. But when this person is taken to an authentic, family-owned Italian eatery in Boston's North End, their perspective is suddenly and unexpectedly transformed. The nature of the meal, the authentic recipes, the freshness of ingredients, and the richness of flavors set a new benchmark for what they consider a desirable dining experience. This shift in perspective mirrors how clients redefine their expectations of financial advice when exposed to a truly exceptional advice experience.
This great advice experience, characterized by its high-quality and perceived value, is what makes an advisor worthy of advocacy. The question for the advisor then becomes: “How do I know if my practice is one worthy of client referrals, and if it’s not, how do I improve it?”
The historical emphasis on misleading metrics is not solely the fault of advisors, but rather a legacy of the profession's sales-driven past. Acknowledging that this dynamic has skewed its reliance on certain metrics, it’s time for advisors to pivot toward more meaningful measures that truly reflect the value and impact of their client relationships and advice. And as Mike Durbin, chief executive officer of Cetera Holdings, recently posited, “Data is a key driver of organic growth.” It’s just about using the right data.
By embracing new metrics, advisors will better align their services with the modern client's expectations, paving the way for deeper client engagement and more meaningful relationships. This alignment is not just about meeting but about exceeding client needs, which drives sustainable growth and enhances the advisor’s ability to be recognized and referred for the high-quality advice they provide.
In my next piece, I’ll discuss the specific drivers of organic growth and the corresponding attributes that make an advisor’s practice remarkable. I’ll also explore the metrics that not only help gauge the state of advisor-client relationships but predict success and client advocacy.
Tom Rieman is founding partner and CEO at Practice Intel, a data-driven platform to scale organic growth which includes a proprietary Relationship Quality Index (RQI) and unique advisor development resources to drive superior firm evaluation and growth.
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Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.
