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Where Are You Going to Go?

Recently, during a call with one of our partners the topic of conversation became the possibility of taking some market share away from a dominant competitor. The feeling of our partners is this competitor has become very lackadaisical in their approach to servicing existing clients. The frustration is becoming apparent to them, if not to their competitor. It reminded me of a recent comment from former California Governor, Jerry Brown regarding Californians leaving the state. “Where are you going to go?”, was the query poised by Mr. Brown. His point being that anywhere you move comes with its own sets of challenges and negatives, but it was the callousness and arrogance (even by a politician’s standards) of the remark that got me thinking about how optimism bias can distort the reality of our client relationships. Every financial professional I’ve ever spoken with has an extremely optimistic outlook about the future of their practice, deserved or otherwise.

Essentially, optimism is a cognitive bias rooted in the availability heuristic. It’s a mental shortcut that leads us to overestimate positive outcomes and underestimate negative outcomes based on the information readily available to us. We never think our clients are going to leave us (Why would they? We’re great.) until they actually do. We rarely pick up on the warning signs of attrition and even when we do, our tendency is to blame the client for not being more forthcoming earlier and telling us explicitly of their unsatisfaction.

Although many of us feel 2020 is never going the end, 2021 business planning season is upon us. Over my past 7 years with Red Rock Strategic Partners, we worked with clients that span the spectrum of financial services delivery and we have seen a lot of different business plans. Plans always include ample room for revenue and AUM growth targets (always 10-20% more than last year) but very little, if any room is dedicated to realistically assessing client attrition risks. Though it may not be part of the “formal plan” you hand in to your superiors or board, I would suggest that you dedicate significant time in your process to seriously consider the vulnerabilities within your client base and take the following actions:

1. Build additional context into your risk assessment: it’s not enough that we simply identify the number of at-risk relationships in our practice, we must build a tactical approach for what we will do about them. We need to ask ourselves tough, pragmatic questions about why they would potentially leave us. Furthermore, I would suggest this as a great segmentation exercise. If most of the at-risk relationships fall into the lower quartiles of our revenue per household metrics, is it really worth retaining them at all? Would they be better serviced elsewhere and free up my time to focus on higher end clients and prospects? If the revenue loss can be rationalized and made up elsewhere perhaps it’s a sound business decision.

2. Look for patterns within your at-risk clients: now that we’ve identified which at-risk clients are truly worth keeping, we must seek out any and all common denominators. Are they all in need of a particular service we do not currently offer? Is there a common portfolio position they all hold that has underperformed? Is the relationship predicated on specific products or rates rather than a holistic wealth management approach? Once we identify the pain point, we can work on a systematic plan to solve for it. There is an abundance of available resources, both technological and human that can help you find the data necessary to identify these pain points. I would suggest starting with the business consulting or practice management department of your firm should they offer one. You can also rely on the service teams of the technology provider that administers your CRM/client dashboard solution.

3. Rediscover your existing top client relationships: Red Rock recently completed several days of virtual development sessions for about 100 financial advisors on the topic of discovery. The core of the peer to peer portion of the sessions dealt with preparing for and delivering a discovery session to a high net worth prospect. As we walked through the exercise, we received a great amount of insightful comments preparation methods, and client engagement questions from the participating advisors. We also discussed how advisors were dealing with their current client relationships throughout the course of the pandemic. The typical response was, “I am calling my clients to check in and see how they are. Asking are you and your family okay?” While this is apt; I would suggest not many, if any, financial advisors are doing a formal and comprehensive rediscovery session for their top relationships as they would for a prospective client. Again, many are falling prey to the availability heuristic and assuming they know all there is to know about their best clients. Perhaps there is no better time than now to formally rediscover your top relationships you consider most at-risk of attrition.

The needs and financial situations of our clients are constantly changing. Our competitors continue to pose a risk to even our best, most loyal relationships. While optimism can be a great source of comfort, let’s not allow ourselves to be lulled into a false sense of security about the current and future state of our business. GM, Ford, and Chrysler once said, “no American will ever buy a foreign manufactured automobile.” Department stores and big box retailers once thought, “this online shipping thing will never replace our value.” Kodak once said, “digital photography quality is no match for film.” You see where I am going with this. Let’s confront reality on reality terms when it comes to assessing the risks of our businesses and how we can better control them.


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