I’ve come to a realization about financial advisory firms that I think is an important one. You can boil down whether or not a financial advisor is adding value into a single metric, you might even say it’s the only metric that matters: Retention. Do clients stay?
There are a million and one things that advisors measure themselves on, and we’re no different – we take part in all the surveys and studies carried out by our software vendors and custodian firms and succession planning consultants.
We can see our growth rate on just about anything, from accounts opened to assets under management to new assets raised.
We can see our revenue lines and expense lines and profit margins.
We can see our inbound inquiries and our website traffic and our social media metrics.
We can see the performance in our clients’ portfolios and the percentage of clients who are sitting within a comfortable threshold of being able to achieve their stated goals.
We can see how many clients open our monthly letters or dial in for our conference calls or log in to our performance-reporting portal.
We can see how many clients are referring their friends and family.
These are all important data points and we try our best to glean insights from them about what we’re doing well and where we could use improvement. We carry this quantitatively and discuss it qualitatively as well, pretty much all the time.
But if I had no access to any of this stuff and could only go by one thing, one metric to determine whether or not we were adding value, I would pick a different stat entirely. I’d pick churn rate. Are we retaining accounts or not?
An advisory firm with poor retention, or a high churn rate or turnover rate, is probably guilty of one of the following:
Selling performance or the ability to select outperforming managers
Paying lip service to actual financial planning
Neglecting clients or running a haphazard contact schedule
Not returning calls and emails
Not providing straight answers to important questions
Making reactionary moves in client portfolios
Failing to live up to what they’d told clients at the outset
On-boarding the wrong clients with mismatched expectations from the outset
I’ll admit that over a nearly 20-year career, half of which was spent as a retail broker, I’ve been guilty of all of these things. Mostly because I never had a mentor to teach me otherwise. That is, until 2012 when Kris Venne came into my life.
Barry and I met Kris in late 2012 as he was plotting an escape from a Syracuse, New York branch of a major wirehouse. Thanks to having taken part in a revolutionary training program designed with client satisfaction in mind, Kris was armed to the teeth with the knowledge necessary to help Barry and I take our nascent practice to the next level. Kris was a fan. We took the meeting.
When he looked at what we were doing – basically low-touch asset management for wealthy people at the time – he shook his head and then schooled us. And this was on the job interview. It takes balls to put a potential employer in their place on the first meeting, but Kris was adamant because he knew he was right.
And boy, was he right.
Kris’s big insight was that financial planning – and, he’s a Certified Financial Planner, so there’s some bias 😉 – should be at the center of the practice. All decisions, especially decisions about portfolios and asset allocation, needed to flow outward from there.
Re-orienting everything we’re doing around what the clients’ actual needs and priorities are, was the game-changer for us. Everything exploded as soon as we did it. Sounds obvious in hindsight, and yet there are thousands of advisory practices and firms that haven’t figured this out.
Kris turns 36 years old today. He is the future of the financial planning profession – technologically adept, socially aware, skilled in a discipline that clients actually need, completely dedicated.
Kris moved his whole family down here to work with us, putting his children in a brand new school district halfway through the year and leaving a house on the market that hadn’t yet sold. Within weeks his fingerprints were on everything we did. He went from being head cheerleader to the quarterback.
At my shop, we have portfolio Jedis like Michael Batnick and Ben Carlson, retirement plan experts like Dan McConlogue and Tony Isola, a tax expert named Bill Sweet, an incomparable rhythm section consisting of Erika Mauro and Patrick Haley keeping everything working, not to mention all of the software – from social media to trading to compliance to CRM. And coordinating everything and everyone’s efforts is Kris Venne. There’s nothing he doesn’t touch in a tireless effort to give our clients the best experience possible.
Barry and I have entrusted him with a lot, and it’s been among the smartest decisions we’ve ever made.
So how do you build an advisory firm with a high retention metric, with low turnover and satisfied clients? Kris would say you do the following:
Tell the clients what you are going to do and then do it
Turn away potential clients whose objectives are not within your circle of competence
Bring on veteran advisors with complementary skills to ensure optimal “teacher-student” ratio
Train young advisors and trust them to take on responsibility
Be open-minded as new technological solutions emerge
Standardize the process, customize the advice
Have a culture and an identity as a firm, live it every day
At the end of the year, we’re going to look back at all of the various metrics I listed above to gauge where we are as a financial advisory firm. There will definitely be room for improvement in many of them. But the one I’ll be paying particular attention to is retention. And if the number looks as good as I hope it will, I know I’ll have a whole team of amazing people to thank.
A team led by my brother Kris. Happy birthday, monster.
This post originally appeared on October 27th, 2016