Half of wealth management clients could be a flight risk: report

In the age of the ubiquitous five-star review, it can be hard to discern clients' true feelings about their financial advisors. 

A new study from wealthtech firm Absolute Engagement and the Investments & Wealth Institute suggests that failing to gauge client sentiments accurately could erode a firm's bottom line if a seemingly happy customer today blindsides their advisor by leaving tomorrow. 

The study, published July 13, found that while 92% of wealth management clients are inclined to stay with their current financial advisors for now and 93% reported satisfaction in those relationships, only around half of them feel strong confidence in their financial pictures. 

"As an industry, we do a very good job at tracking satisfaction and Net Promoter Score and loyalty," Julie Littlechild, the founder and CEO of Absolute Engagement, said in an interview on the study results.  

"The reality is, those scores always look good." 

Absolute Engagement

However, metrics around clients' confidence in their personal financial pictures are what Littlechild calls "leading indicators" that can reflect something more important: how well the client is feeling served by the advisor to arrive at greater peace of mind around their finances, which is ultimately their overall goal. 

The survey polled 1,000 wealth management clients between April 20 and May 1. All of the clients had at least $500,000 of investable assets, Littlechild said. Many were high net worth, with some in the sample reporting between $1 million and $4.9 million, and others reporting $5 million or more of investable assets. 

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Flight risks 
Among these wealthy clients, several "satisfaction gaps'' emerged in the data. Some 82% of them identified feeling financially secure as "very important," but only 52% of them strongly agreed that they felt financially secure. Similarly, while 75% of clients said it was very important to feel in control while reaching their financial goals, only 51% strongly agreed that they felt that control. And while 74% said it was important to feel confident they could reach their financial goals, only 53% actually felt confident that they could do so. 

Overall, 31% had only low to moderate confidence about their finances.

"The message for leadership teams is, a lack of confidence is a form of risk," Littlechild said, adding that data shows correlations between low confidence and lower client loyalty. 

That could also explain why only 35% of the survey respondents said they take the additional step to refer new clients to their advisors. Littlechild said that in her experience, even that number seems high — it's more often less than 5% of an advisor's clients that actually make referrals. 

Referrals have long been the lifeblood of the profession, and the vast majority of advisors still get most of their new business from referrals. Rich clients who provide referrals can be invaluable sources of organic growth. 

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Littlechild said that advisors and firms can take the findings as a wake-up call to embrace communications that move away from mere commentary on the markets to more future-focused questioning and benign probing that can uncover each client's personal dreams and fears around money. 

"Even as markets have been uncertain but have been rebounding, there is sometimes a disconnect" for clients, Littlechild said. 

While market volatility and inflation have been added stressors for many households, their financial anxieties often stem from other issues. 

Littlechild said that while there were slight differences based on wealth among respondents, some of their top concerns were around the rising costs of healthcare and long-term care — "even though they were wealthy." Market volatility also featured, as well as personal and family health and ensuring their children made good financial decisions. 

For 43% of the surveyed clients, the greatest benefit of working with an advisor was "gaining a clear vision for the life they wanted in retirement," the press release said. However, only around half the clients said their advisor had helped them plan around their retirement and future in a non-financial way, such as by considering travel, health or personal goals after leaving the workforce. 

Peeling onions 
"We just have to acknowledge the importance of this and then give advisors the tools," Littlechild said of firms. "Whether that's soft skills to have better conversations or tools to actually draw out those sentiments, I think this is where firms are really heading." 

Absolute Engagement launched its own fintech product in March, the Absolute Engagement Engine, to help advisors deliver personalized engagement to clients at scale. 

For Patrick "Pat" Swift, a wealth advisor and the vice president of wealth planning at Amplius Wealth Advisors, regardless of what tech a firm decides to pursue, the individual advisor has a lot of power to shape client relationships in their favor. Amplius is a registered investment advisor in the Dynasty Financial Partners network, based in Blue Bell, Pennsylvania, in the Philadelphia metropolitan area. 

"Probably the most important tool or character trait for any good advisor is just good old empathy," Swift said. "And like, genuine empathy. Not, 'I'm going to pretend to listen to what your goals are … so that I can find a way to plug our service model.'" 

Littlechild agreed that empathetic listening was key. 

Read more: Anne Lester on why financial advisors should open a 'window of empathy' for younger clients

"The starting point is about more open conversations, peeling back the onion and just understanding why. 'Tell me more. Why do you feel that way? What would have to happen (for you) to feel differently?' They're simple questions, but I think they unearth a lot of engagement opportunities."  

Swift said listening to clients' needs first provides the chance for him to tailor the conversation and demonstrate how he can add specialist value that is relevant to their situation. Then, importantly, he cements the bond by following through on whatever it is he promised. 

Swift said he's read online about surveys that reveal the real reasons why clients leave: "It's almost always the small stuff. It's, 'I didn't get a prompt email response. I can never get a hold of my advisor. I feel like they never have time for me. I'm just a number.'"