Catch the Warning Signs of Clients Ready to Leave

By Amy McIIwain, President, Financial Social Media on Tuesday, April 24th, 2012

Every advisor dreads the notion that his or her clients are looking to go elsewhere. And with 40% of investors thinking about making a move even though the market is nominally rising, nobody can afford to simply let them go.

But by the time the

Every advisor dreads the notion that his or her clients are looking to go elsewhere. And with 40% of investors thinking about making a move even though the market is nominally rising, nobody can afford to simply let them go.

But by the time they’ve made up their minds to tell you, it’s usually too late to convince them to stay.

Instead, the time to be alert for red flags is well before the formal relationship ends, forensic accountants say.

The first key, as the Watergate investigations brought home, is to follow the money.

If you notice that a client is opening new brokerage accounts or getting involved with investments you didn’t recommend, it’s a pretty good clue that you’re no longer the center of that financial universe.

You don’t have to be consulted on every decision your clients make, but they should be keeping you in the loop -- especially if these new entanglements conflict with any financial planning you’ve done together.

Maybe your client suddenly thinks he or she can fly solo now, without your help. Or maybe there’s someone new in the picture, and nobody’s told you yet.

Either way, it’s a potential problem. And advisors need to be able to see these clandestine flows in order to figure out what to do about it.

That’s a powerful argument for a unified account management system right there.

As James Carney of ByAllAccounts told me recently, an advisor without a 360-degree view of all the assets -- not just those under active management -- is basically abandoning any claim on playing more than a peripheral role.

“You don’t want to be just a piece of the action any more than your client does,” he explained.

Getting ahead of the flows

Remember, aggregation is a double-edged competitive proposition. Since you can use it to prospect held-away assets in other advisors’ custody, you can also use it to see when other advisors are scoring wins that should have been yours.

Those flows mean it’s time to bring your best defensive game to the table. And the time to do that, says long-time investor psychology guru Jack Waymire, is before you see the mystery checks to those other advisors start clearing.

“You should be on alert well in advance of any actual allocations to rival advisors,” he says.

“There are covert red flags that an investor isn’t happy. At that stage, the relationship can sometimes be fixed. But by the time you see money actually move, that’s a fairly overt sign that it’s over.”

Waymire says the process of firing an advisor looks a lot like how things work when the relationship starts in the first place.

At the beginning, prospects take a chance on you because they like you.

That’s your chance to prove that they can trust you with their money.

And then, you get the chance to demonstrate your expertise and earn that paycheck.

Client relationships get into trouble when that natural evolution from stranger to trusted advisor starts going backward.

There is such a thing as a bad question

It starts with an erosion of confidence, Waymire explains.

“In the overt form, this is when a normally docile client starts criticizing your decisions, second-guessing your advice,” he says.

“More covertly, they suddenly start asking questions. Why did you recommend this fund? Why funds and not ETFs?”

Many advisors are resigned to client second-guessing as part of the cost of doing business, another task in an already busy day.

And of course, some clients will always need you to explain your rationales and show your work before they sign onto any change in the portfolio or the plan.

But recognizing that a flood of new questions is actually a challenge to your expertise exposes a weakness in the relationship when it’s still early enough to shore up.

Waymire estimates that there’s maybe a 50/50 chance of saving the situation at this stage. All you have to do is answer the questions and soothe the suspicions that you don’t really know what you’re talking about.

If the situation gets much deeper, the odds of keeping the account drop to maybe one in five. This is the point when you discover that the client wants to see other people.

 “It rarely comes as an ultimatum: improve performance or I’m gone,” Waymire says. “The more subtle form is becoming a lot more common: I want to move part of this money to another advisor.”

The client can come up with any number of great arguments why advisor diversification makes sense. In theory, splitting the money protects against succession risk, correlation risk, group think, you name it.

But you might have used similar arguments to prospect a piece of other advisors’ accounts in the past, and you should know what they really mean when you’re on the other side.

Losing a piece of an account that was once yours to manage gives a competitor a toe in the door. He or she is hoping to widen that opening and capture a bigger share of the assets down the road.

Maybe it’ll work, maybe not.

But from a trust point of view, what “diversification” really means is that instead of trusting you completely with 100% of that money, your client now only wants to risk 95% or 65% or half of those assets to you.

You might be all right being “just a piece of the action,” as James Carney of ByAllAccounts says, but it shouldn’t be your strategic goal. You want to be the advisor digging new toeholds and converting vulnerable prospects -- and not the one having it done to you.

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y’ve made up their minds to tell you, it’s usually too late to convince them to stay.

Instead, the time to be alert for red flags is well before the formal relationship ends, forensic accountants say.

The first key, as the Watergate investigations brought home, is to follow the money.

If you notice that a client is opening new brokerage accounts or getting involved with investments you didn’t recommend, it’s a pretty good clue that you’re no longer the center of that financial universe.

You don’t have to be consulted on every decision your clients make, but they should be keeping you in the loop -- especially if these new entanglements conflict with any financial planning you’ve done together.

Maybe your client suddenly thinks he or she can fly solo now, without your help. Or maybe there’s someone new in the picture, and nobody’s told you yet.

Either way, it’s a potential problem. And advisors need to be able to see these clandestine flows in order to figure out what to do about it.

That’s a powerful argument for a unified account management system right there.

As James Carney of ByAllAccounts told me recently, an advisor without a 360-degree view of all the assets -- not just those under active management -- is basically abandoning any claim on playing more than a peripheral role.

“You don’t want to be just a piece of the action any more than your client does,” he explained.

Getting ahead of the flows

Remember, aggregation is a double-edged competitive proposition. Since you can use it to prospect held-away assets in other advisors’ custody, you can also use it to see when other advisors are scoring wins that should have been yours.

Those flows mean it’s time to bring your best defensive game to the table. And the time to do that, says long-time investor psychology guru Jack Waymire, is before you see the mystery checks to those other advisors start clearing.

“You should be on alert well in advance of any actual allocations to rival advisors,” he says.

“There are covert red flags that an investor isn’t happy. At that stage, the relationship can sometimes be fixed. But by the time you see money actually move, that’s a fairly overt sign that it’s over.”

Waymire says the process of firing an advisor looks a lot like how things work when the relationship starts in the first place.

At the beginning, prospects take a chance on you because they like you.

That’s your chance to prove that they can trust you with their money.

And then, you get the chance to demonstrate your expertise and earn that paycheck.

Client relationships get into trouble when that natural evolution from stranger to trusted advisor starts going backward.

There is such a thing as a bad question

It starts with an erosion of confidence, Waymire explains.

“In the overt form, this is when a normally docile client starts criticizing your decisions, second-guessing your advice,” he says.

“More covertly, they suddenly start asking questions. Why did you recommend this fund? Why funds and not ETFs?”

Many advisors are resigned to client second-guessing as part of the cost of doing business, another task in an already busy day.

And of course, some clients will always need you to explain your rationales and show your work before they sign onto any change in the portfolio or the plan.

But recognizing that a flood of new questions is actually a challenge to your expertise exposes a weakness in the relationship when it’s still early enough to shore up.

Waymire estimates that there’s maybe a 50/50 chance of saving the situation at this stage. All you have to do is answer the questions and soothe the suspicions that you don’t really know what you’re talking about.

If the situation gets much deeper, the odds of keeping the account drop to maybe one in five. This is the point when you discover that the client wants to see other people.

 “It rarely comes as an ultimatum: improve performance or I’m gone,” Waymire says. “The more subtle form is becoming a lot more common: I want to move part of this money to another advisor.”

The client can come up with any number of great arguments why advisor diversification makes sense. In theory, splitting the money protects against succession risk, correlation risk, group think, you name it.

But you might have used similar arguments to prospect a piece of other advisors’ accounts in the past, and you should know what they really mean when you’re on the other side.

Losing a piece of an account that was once yours to manage gives a competitor a toe in the door. He or she is hoping to widen that opening and capture a bigger share of the assets down the road.

Maybe it’ll work, maybe not.

But from a trust point of view, what “diversification” really means is that instead of trusting you completely with 100% of that money, your client now only wants to risk 95% or 65% or half of those assets to you.

You might be all right being “just a piece of the action,” as James Carney of ByAllAccounts says, but it shouldn’t be your strategic goal. You want to be the advisor digging new toeholds and converting vulnerable prospects -- and not the one having it done to you.

You Might Also Be Interested In:

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