How to Build your Business

A study by PriceMetrix analyzed the concept of client retention within the field of financial advisors and wealth managers. The study, based on a multi-year analysis of $3.5 trillion in assets, 500 million transactions, and 7 million investors attempted to answer two primary questions:

  1. What are the characteristics of clients who are more likely to stay with their advisor?
  2. What are the characteristics of advisors who are able to retain a high proportion of their clients?

The value of retaining current clients is obvious; one opinion holds that it costs up to seven times more to win a new client than keep a current one. Good news from the study is that generally 90% of clients within a year continue to remain with their current advisor. The issue is how to replace the 10% who leave and at what cost. Lessening the loss of the 10% who leave through smarter knowledge of which clients are likely to stray and how to keep them instead of allowing them to wander provides the basis of this article.

When are Clients Likely to Leave?

The PriceMetrix analysis concluded that the riskiest time period is between the 1-year and 4-year mark in the client-advisor relationship. The study viewed the first year as a “honeymoon” period between the advisor and their client. During the 13th month and 47th month is when the relationship is at its most tenuous, with clients determining if their advisor is meeting their needs. A relationship that gets to the 48th month is likely to remain for the longer haul.

More Assets = Longer Haul

As household assets increase, the probability of client retention increases as well. As example, a client household with assets of $100,000 has an 87% likelihood of remaining as a client of their current advisor. A client household with $500,000 in assets has a 94% likelihood of remaining as a client of their current advisor. The more assets a client is willing to entrust to their advisor, the greater the likelihood that the working relationship will continue to endure.

The More Accounts ... the Better

The analysis indicated that the number of the accounts managed by an advisor on behalf of their client was a positive indicator of continued client retention. A household with a single account had an 86% likelihood of remaining as a client of the same advisor; however, a household with five accounts had a 94% likelihood of remaining as a client.

Additionally, the presence of retirement accounts was a specific indicator of client retention success. A household with two or more retirement accounts achieved a 94% likelihood of being retained by the advisor.

For an advisor, achieving deeper relationships with their clients are key. As the study indicated: “… when advisors … surmise that they have only a share of a client’s investable assets, they should endeavor to increase their share, since doing so improves the prospect of retaining that client.”

How to Build a Deeper Relationship

The concept of charitable planning can prove to be an ideal means to building a deeper relationship with a client. Simply put, charitable planning is the concept of putting thought and strategy into how someone donates assets to the charitable causes that they support. For many advisors, this is a topic that they may not normally discuss for a host of reasons, including:

  • The advisor is fearful of discussing a topic that could potentially lower their assets under management (AUM).
  • The client has not expressed charitable interest so the subject is never raised by the advisor.
  • The advisor is not familiar with charitable giving strategies well enough to initiate the subject.
  • The advisor perceives discussion about charitable giving as a potential invasion of client privacy.
  • The advisor has no personal experience/history with charitable giving.

Regardless of the reason, guidance exists on who to speak to and what to ask them. Once an advisor has that knowledge, determining if a donor advised fund (DAF) can be of service is the next step.

A DAF helps organize a client’s assets in a way that is simple, flexible, and efficient. A DAF could be best described as a charitable investment account. The money that goes into a donor advised fund becomes an irrevocable transfer to a public charity with the specific intent of funding charitable gifts. This public charity serves as the administrator of the DAF.

A DAF not only allows a donor-client to utilize assets besides cash, but in the case of a donor advised fund at American Endowment Foundation, the financial advisor can continue to manage these charitable investment assets on their familiar custodial platform.

The following articles and resources can help. Contact us or call at 1-888-966-8170 with any further questions.


Whitepapers, Ebooks & Articles

The ABCs of DAFslogosmall.png

A Legacy Fund: The WHY & HOW of Better Planning for Charitable Givinglogosmall.png

Business Growth & Client Retention: Using Charitable Planning for Building your Practicelogosmall.png

The Guide to Better Givinglogosmall.png

Mastering Complex Givinglogosmall.png


Additional Insights

3 Questions for Better Charitable Giving

Generational Wealth Transfer: Is Your Practice Prepared?

Strengthen your Practice Through Estate Planning

What HNW Clients Want from Advisors

Charity vs. Children?: HNW Estate Planning

HNW Individuals + Donor Advised Funds = More Success

Keeping the Next of Kin as a Client



Tom Tobin

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