Retaining Clients Through a Transition

If you have been in the industry long enough, you’ve heard horror stories about financial professionals changing firms or breaking away, only to lose a majority of their clients. This story is the same across numerous channels, including wirehouse, independent, and insurance-based or bank broker-dealer-affiliated financial professionals. These stories are sometimes fabricated by branch managers to scare everyone straight (I am thinking of my former wirehouse!) and sometimes they are true.

Exploring the Truths

Let’s start by exploring the cases that are true. It’s typically obvious why this happens. A financial professional is not happy with their practice’s growth and often is pressured by their firm to produce more. They may react by moving to a new firm that has a polished recruiting strategy that seems far more attractive. However, the financial professional has never been proactive and plateaued early on in their career.

They got here by not building or adopting a system to more efficiently manage their clients and practice. Clients were never segmented and called or asked to meet on a monthly, quarterly, or annual basis. These clients typically were the ones initiating the conversation, which often put the financial professional on their back foot. Without an established relationship, the inevitable death spiral will occur when switching firms.

Why does this happen?

Clients choose to work with the financial professional, not with the firm that he or she is affiliated with. Wirehouse financial professionals: you know it’s true. Every individual is compelled to look out for number one and, should they receive poor service, they will make a change. So, when financial professionals make the change for a ‘new beginning’ or ‘upgraded platform’, clients exit stage left.

A Cautionary Tale

When consulting with financial professionals during a transition we always ask, “What does your client service model look like?” We tell them that they don’t need to answer the question to anyone but themselves, but the answer will affect client retention. There are other factors that impact client retention during a transition, but there is no other single factor that has a more profound negative or positive effect than how an financial professional services their clients. Period.

We recently counseled a financial professional who was moving and one week prior to the transition date, he asked me if it would be okay for him to speak with his compliance officer. According to the financial professional, this individual was trusted and held in very high regard. He thought the compliance officer could make his outgoing departure smooth. For the record, we strongly advised him not to share this information and in the end against his better judgment, he told his secret. Luckily for him, this particular incident only resulted in one lost pay period of fees and commissions, but it’s still not an easy pill to swallow. However, it could have been much worse. Outside of your spouse/partner and attorney (and new firm!) never tell anyone about your move, as it could result in immediate termination.

Retention Rates Remain High

The majority of financial professionals do subscribe to tremendously effective service models and we often see client or asset retention as high as 85% or higher. This retention begins years before a financial professional is even thinking of changing firms, as the financial professional’s business practices help cater to clients for life. They become a trusted financial consultant and occasional poor investment performance results don’t cast a shadow on the relationship. Having taken my own book of business through a firm change, and then helping dozens of financial professionals and teams make a move, we consistently see client retention between 70% and 90% or higher. More often than not, the lower retention rate is by design as they shed clients they don’t want.

A Tale of Success

One of my favorite stories, told so much more eloquently than I can, comes from a financial professional in Ohio. He left a wirehouse to affiliate with an independent broker/dealer. Let’s call him John. So, John segmented his book A through D, as so many financial professionals do. Upon resigning, his ‘A’ clients received nothing short of white glove service to ensure retention. The ‘B’ group received very close to the same level of attention, as they were also very important to his business. John mailed one letter to his ‘C’ clients and if they did not respond to the letter, he let them go. His ‘D’ clients (the ones he definitely didn’t want) were never notified of his move! The day after he moved firms, John said he was more profitable than ever and, more importantly, he was now running a highly efficient practice.

Final Thoughts

At the end of the day, financial professionals should focus on a better experience for their clients and the retention will follow. As long as you are maintaining a close relationship with them, clients will be loyal to you, rather than the firm you are affiliated with. Whether you stay with your current firm or not, client happiness is the core metric that dictates a financial professional’s success or failure. Never forget that.