Better Business: Luring clients from the competition

Bryce Sanders, president of Perceptive Business Solutions, looks at how to keep in favour with potential clients.

Some people are luckier than others. Since October 2007 most investors have had a wild ride in the stock market. You have stayed in touch with your clients, provided a good service and encouraged equity investors not to sell out in early 2009. Thanks to the market rally they have recovered some lost ground.

Some people may not have received much attention from their advisers. Maybe the adviser was afraid to call or assumed the client did not open their statements.

You were proactive and found such a person. You learned about them, evaluated their portfolio and made suggestions. Your proposal included transferring the assets away from the other adviser and into your firm.

Being an ethical person you asked the client’s permission and called the other broker and explained the situation. Two days later the client calls you. They have changed their mind.

Everything stays with the other broker. What happened?

Obviously the other broker talked the client into staying. If they were unscrupulous they may have invented stories how you were taking advantage of them, charging high fees, etc. Maybe they focused on their longstanding relationship with the client. They won and you were cast as the villain.

Don’t forget about it!

It is tempting to consider the exercise wasted time and focus on new prospects. You need at least one more conversation with your prospect, the “almost client”. Why? The other adviser cast you as a “predator”.

You have probably heard the old saying: “If a person has a good experience they will tell one other person. If they have a bad experience they will tell ten other people.” Set the record straight.

Planning the meeting

What can you do? Can you recover the relationship? Let’s start by looking at what’s in your favour. These items should carry some weight:

• You gave the client time and attention
• You spent time listening and learning about their goals, dreams and concerns
• You persuaded them the “world was not ending” and selling everything is a bad idea
• You made them feel important and valued
• You came across as an expert.

What did the other adviser say? We do not know, but we can ask the prospect. Let’s assume the prospect will meet with you. Get them talking. Did the other adviser say:

• “We can do everything you suggested at my firm”
• You have nothing to worry about
• Trust me
• You should have come to me first

What if they won’t meet

The other adviser hopes this is the end of the story. They probably do not want the client seeing you again. The client may be reluctant to meet. Start by establishing common ground. The importance of the money to them. Their goals. Your professional approach.

If they are reluctant to meet (and you have run out of options) consider this approach: “I hope your adviser did not forbid you to see me. It is unusual but some advisers have this uncanny power over clients. They seem to have forgotten it is their job to follow the clients instructions, not the other way around.” Be polite and tactful. You have their concerns at heart.

Probation

Although the other person retained the account, they may have won the battle but not the war. You opened the client’s eyes. Your strategy going forward is to keep them open.

You need to rewrite the rules

The client is aware their portfolio declined in value. You may have pointed out flaws in the structure. Suggest putting the retaining adviser “on probation” for three months. Let’s see how they do during that time period.

How do you measure results during the probationary period? Easy. You might compare their performance to an index like the FTSE 100, S&P 500 or similar. This has the advantage of being easy (it is printed in the paper, followed on TV) but it may not be fair. You are an ethical financial adviser! You may need to develop a blended index to represent the proportion of small cap stocks, international stocks, etc in the portfolio.

Another way to measure results is the “horserace method”. Build a model portfolio on paper, the one recommended to the prospect. Track its performance over the same period. In fairness determine how much the client would have paid in fees (and taxes) to convert from their current holdings into your portfolio. Track the results.

Foot in the door

Will the prospect award a consolation prize? Your suggestions have merit. They make sense. Will they send over a smaller portion of the money, 5% or 10% to establish the portfolio on a smaller scale? It is a reasonable suggestion. The current adviser is in a difficult position. They just salvaged the entire relationship. Are they willing to risk losing it again over a small transfer out? You want an opportunity.

Why maintain more than one account? Because that is the way high net worth individuals traditionally manage their money. In the book The Millionaire’s Advisor by Russ Alan Prince and Brett Van Bortel the authors make the point the wealthy often have multiple advisory relationships. They make the case it is an average of three or more relationships with financial advisers and financial consultants.

Stop you say! It is a bad idea to sell on performance because “if you live by the sword, you die by the sword.” While we are at it, it is a bad idea to settle for a small portion of the money. “If we are going to work together I want all the assets.”

If this were during medieval times you and the other adviser are like two armoured knights on the field of battle. Two ways to pry open your opponents armour are attacking on performance and service. You are measuring performance while the client has put them on probation. You have established a second account relationship for the client to compete on service. When the battle is won and you have earned the trust of your client, you can discuss the advantages of consolidation.

We can do that

You made a good case for change. The other adviser countered by explaining: “We can do that.” Or: “You can do that here.” During the probationary period did the adviser make changes consistent with your suggestions or leave the client’s investments as they were. You are tracking performance of your recommendations. Bring this question up after three months. You gain credibility if the adviser implements the suggestions and they do well. If the adviser doesn’t you are tracking performance.

What are you paying?

Shine light into dark corners. Clients should know what they are being charged in direct and indirect fees. Explain this to your client when presenting your recommendations. Include fee data. Also help the prospect determine what they are paying at your competitor. Include indirect fees built into mutual funds, etc. When discussing investments with surrender charges show how these are recouped over time with long and short holding period scenarios. Has their current adviser ever had this discussion?

Taken for granted

Your prospect was on their way to becoming an important client in your business. A person you care about and who would be receiving excellent service. Why did the client not get excellent service from their current adviser? Probably because they were taken for granted. The relationship had become comfortable. The client followed suggestions and never raised questions or complained. If the client was enrolled in a fee based programme, the adviser may have thought of the client as producing income with little attention and focused their attention on finding additional clients to increase their fee base. A major client advantage of fee based business is the attention the client receives from their adviser.

Ask the client: do you think you have been taken for granted by your current adviser? Are you an important client to your adviser? How do you know? Clinical as it sounds, an effective strategy is to introduce doubt and present an attractive alternative. “You will be an important client to me.” You must live up to your statement.

The higher goal

You learned about your prospect. You know why they are investing and what they want to accomplish. It involves achieving a goal or dream, not outperforming an index.

Explain to your prospect their goals and objectives as you understand them. Does their other adviser understand what they are trying to accomplish? How is their current portfolio designed to get them closer to the goal? Has their adviser explained this adequately? You are making the case how your recommendations help get them closer to their goals. Periodic reviews are utilised to keep track of progress.

Bryce Sanders is president of Perceptive Business Solutions Inc. in New Hope, PA. His book Captivating the Wealthy Investor can be found on Amazon.com