One of the areas where Credo conducts research regularly is around the matter of customer loyalty. How does a personal financial advisor build and maintain a loyal customer base? Some of our research points to the significant importance of helping your clients (if you are an advisor) develop true understanding of the financial matters that are affecting them at any given life stage.
We asked more than 17,000 investors to indicate how they feel about their financial advisor: “On a scale from 0 to 10 where 0 is extremely unlikely and 10 is extremely likely, how likely would you be to recommend your financial professional to friends, family or colleagues?” This is a relatively conventional question for assessing customer loyalty. Where an investor indicates that they would rate their advisor a 9 or a 10 on our scale, we characterize the investor as an ADVOCATE — a client we would expect to stick with their advisor, loyally, and recommend that advisor to others. Those who rate their advisor a 7 or an 8 are characterized as PROPONENTS. Those who rate their advisor a 4, 5 or 6 are labeled STASIS while those who score their advisor below a 4 are in the SWITCH ZONE. Clients who are in the switch zone should really be considered “potentially at risk” from a loyalty perspective.
Credo validated these characterizations by asking the same investors to tell us whether or not they were planning to find a new financial advisor to replace their current advisor. A very strong positive correlation was found between investors’ looking for a new advisor and their membership in the four categories we created for them (Advocates, Proponents, Stasis and Switch-Zoners.) That shouldn’t be too surprising.
Where this story gets interesting is in the cross-tabulation between:
- investors’ classification into these four categories; and,
- their feelings about their understanding of the financial matters that are important at their current life stage.
(We asked them to indicate their level of agreement with the statement: “I have a good understanding of the financial matters I need to address at this stage of my life.”)
Exhibit 1: Investors’ Understanding Key Financial Matters and Their Propensity to Recommend Their Financial Advisor.
Exhibit 1 above shows that 32% of investors who feel strongly that they understand the financial matters that are of importance to them at their current stage of life are Advocates for their financial advisors. An additional 41% of these investors are Proponents and, we believe, are highly unlikely to be looking for another financial advisor. Only 10% of investors who feel they really have a solid understanding of key financial matters are shopping for a new financial advisor; they are in the Switch Zone. By contrast, when we consider those investors who feel that they really don’t have a good handle on the financial matters that are important, we find more than three times as many in The Switch Zone (32%) and only 14% of these investors are advocates for their advisors.
There is a clear and strong relationship between the investor’s level of understanding and the level of advocacy the investor offers for his advisor. Loyalty (and potentially advocacy) is related to the client’s understanding of important financial matters.
SO WHAT? Well, on the basis of this analysis, Credo recommends that advisors who are interested in developing a base of advocates — highly loyal clients — place considerable focus building their clients’ understanding of the matters that are (or should be) of importance to them. And advisors shouldn’t confuse their own knowledge with a client’s understanding. Perhaps easier said than done, but using knowledge to develop understanding within clients is at the core of most advisors’ roles with their clients. Help the client with their understanding and they will love you back.
Advisors should review their process for educating their clients occasionally. Advisors should continually test and re-test their clients’ appreciation of key financial matters, but they should also study and appreciate the matter of learning styles. School teachers spend as much time developing the knowledge, skills and abilities required to teach children as advisors spend learning the craft of delivering financial guidance. Advisors would do well to take a page (or more) from the books of school teachers and learn about how people review, absorb and embrace information. This would position a fresh-eyed advisor to better deliver their own knowledge to clients in ways that make sense to the individual client. Every client is unique; their learning styles differ. An advisor who is committed to developing a loyal group of advocates as clients will benefit from an appreciation of learning styles and from transforming their client development efforts into well-tailored learning opportunities for their clients.
Note: This article is a product of research conducted cooperatively by Credo and Investment Executive, Canada’s leading publisher of information for and about Canada’s financial advice industry.