The Top Four Reasons Clients Leave an RIA

August 15, 2023

As a Registered Investment Advisor (RIA) owner, your book of business is your lifeblood. Managing client relationships and ensuring they remain with your firm is part and parcel of the job. Nonetheless, clients leave their RIAs all the time. Client attrition can significantly impact the growth and sustainability of your RIA firm and can hinder your ability to achieve the eight-figure exit. Understanding the reasons clients leave could position you to address the most common causes proactively. In today’s entry, I’m looking at the key reasons clients leave RIAs and providing actionable insights to help you retain your valuable clientele.

Follow Along With The Financially Simple Podcast!

This week on The Financially Simple Podcast:

(3:51) From the business owner’s seat

(5:16) Loyal customers are more likely to refer

(6:05) Why do clients leave their RIA?

(7:21) Fixing the communication issues in your firm

(9:35) Perception of value

(10:46) Aligning the value proposition

(13:53) Lagging technology

(16:14) Poor chemistry
(22:24) Shifting methodology

Client Retention is Smart Business

Retaining your current clients is a critical function for the success and profitability of your advisory practice. According to Harvard Business Review, acquiring new customers can be up to 25 times more expensive than retaining existing clients in certain industries. Additionally, increasing customer retention by just 5% can lead to a significant boost in profits, ranging from 25% to 95%. Similarly, an article by Microsoft highlights that loyal customers are more likely to refer, forgive, repurchase, and try new offerings. Client retention is important, but understanding why clients leave their advisors is essential to improving your firm’s retention numbers. So, what are the biggest reasons clients leave?

Reasons Clients Leave Their RIAs: Poor/Infrequent Communication

Perhaps one of the biggest reasons clients leave their advisors is poor or infrequent communication. Financial Advisor magazine conducted a study revealing that 72% of advisors reported their clients firing a previous advisor due to a lack of timely communication. Clients value appropriate contact with their advisors. A Cerulli survey further supports this, with 39% of investors emphasizing the importance of maintaining appropriate contact with their advisors.

Of course, an “appropriate amount” of communication is open to interpretation. However, it is true that when we fail in communicating with clients, we run the risk of seeing them leave. If we know that poor communication is one of the reasons clients leave, how do we fix the issue?

Fixing Poor Client Communication Habits

If you’re concerned that poor communication could cause your clients to leave, there are steps you can take to mitigate that risk. First, consider “trimming the fat.” What do I mean by this? Well, if you segment your book of business, you’ll likely find that the rule of 80/20 is actively entrenched. Basically, this means that 20 percent of your clients are producing 80 percent of your revenue. Therefore, you can look at the bottom 20 percent of your book and “graduate” those clients to another advisor that’s more suited for them. This will free up your time, enabling you to communicate more frequently with your top-tier clients. It could also benefit the clients who were graduated, going from your “C” clients to the new advisor’s “A” clients.

Another way to improve your communication is to automate. Not long ago, I had a surgical procedure done. As I approach my follow-up appointments, I receive automated texts reminding me of the appointment and providing any pertinent information. It’s so easy because once you build the automation, you’re done. It handles every communication from there on. Oftentimes, this can be done through your CRM. My current firm uses a CRM that allows us to automate our email communications.

Finally, you could hire someone to handle all of your client communications. They can create nurturing, social media, and email campaigns for you.

Perception of Value

It has been said that perception is reality. Clients will often commoditize asset management. In fact, a recent Accenture report found that 55% of investors believe they can achieve better investment returns themselves. This highlights the need for advisors to demonstrate their unique value beyond investment management. Advisors are no longer just competing with other advisors. Technology has empowered the investor and many actually believe they can manage their investments better than the professionals. Maybe they can.

According to the Finance Customer Experience Report by Qualtrics, 42% of clients choose an advisor based on a good investment track record. However, only 8% leave because of a poor investment track record. What happens when clients leave is often a misalignment of the value proposition. You see, I speak with advisors all the time who say things like, “We are comprehensive planners,” or, “We’re a comprehensive tax and finance firm.” They follow this up by giving the client a menu of services. However, unless that menu is communicated respectfully and consistently, and is delivered as it was sold, then there’s a misalignment that takes place.

For myself, financial planning is the root of what I believe in. I don’t feel the same way about asset management. As a client, asset management drives me nuts. I don’t want to talk about my portfolio. Instead, I want to discuss the strategy around moving my assets and net worth to a desired outcome. Therefore, for us to align the value proposition we have for our clients, we need to continue to speak into and deliver on what we’re doing. If you can properly align your value proposition, you could avoid client attrition.

Lagging Technology

Outdated or inadequate technologies can lead to client frustration and dissatisfaction. Clients value the ability to view all their investments in one place and expect an intuitive digital experience. Advisors should consider reinvesting strategically to modernize their tech stacks and provide clients with a seamless user interface. A ThoughtLab survey found that 44% of clients were frustrated that they can’t view all of their investments in one place. The same report shows that 49% of investors selected firms based on their digital experience.

Folks, we live in Fintech world right now. The financial tech world is ever-growing. If you’re trying to build a firm, you probably understand how frustrating it is to try to connect the various APIs to each other. You’ve got financial planning software that tries to aggregate with another software, and then there’s a two-factor authentication problem. It drives me crazy, trying to be “tech guys” and making these programs connect with each other. But client’s are every bit as frustrated.

Lagging and inconvenient technologies are one of the reasons clients leave their advisory firms. This is especially true of the younger generations. Think about it… Our younger generations are the generations that will often move the average age range of our book which causes our multiple to increase. If the younger clients (who will likely receive inheritances from your older clients) are leaving, then you could find yourself with a book of business that is going into atrophy. Therefore, if your technology is lagging, you may need to make an investment to bring it up to date.

Poor Chemistry Reasons Clients Leave

Friends, establishing a personal connection with clients is crucial for maintaining long-term relationships. According to a study by MIT AgeLab and AIG, 25% of clients are willing to leave an advisor if they don’t establish a personal connection. Understanding the importance of creating a personal connection could help you to de-risk your firm, as it relates to the advisors working beneath you. But let’s flip it around for a moment. What if YOU don’t have a connection with the client?

I don’t like working with medical doctors. I won’t work with them. The way they think just frustrates me. However, there are advisors in my firm that love working with medical doctors. Sometimes, you’re just not going to click with certain people and that’s okay. So, you want to try to align your clients with the advisors who are best suited to them.

Forbes reports that 86% of customers who have an “emotional connection” with a brand are more likely to continue doing business with them. When you’re working toward the eight-figure exit, you have to make the brand the company. Decentralize yourself and your advisors from the brand. In a report by Wharton University of Pennsylvania, Dr. James Grubman states that, “clients are more comfortable and more likely to continue their relationship with advisors who are able to integrate the financial and the personal into their financial advising practices. Those advisors who don’t, will likely face limitations in the advisor-client relationship and may find that they are ultimately unable to satisfy the client.”

In other words, be authentically you. Give clients the opportunity to know you by hosting them in your home. Send Christmas cards and make birthday calls. It will go a long way in forming a real connection. But the biggest thing you can do is ask thought-provoking questions about them. Ask and listen to their response.

Sometimes, Losing a Client is Good

Sometimes, losing clients can be a positive outcome when your business evolves and improves. As you seek to enhance your company and adopt new methodologies, some clients may feel left behind or undervalued. It is crucial to communicate the positive impact of these changes and how they benefit the clients. Change is inevitable, and embracing it can lead to better client outcomes and overall growth.

If you find yourself in this position and a client decides they can’t handle the change, what should you do? Love them. Remember, it’s you who’s changed, not them. I’ll never forget when I sat down with a long-time client and dear friend after the sale of my companies. They told me that they were happy for me, but that things just weren’t the same. They didn’t like the more “corporate flavor” that came with the transition. As a result, they explained that they were leaving Justin, the advisor, but staying around for Justin, their friend. So, sometimes positive changes in your firm can be the reason clients leave. Friends, that’s okay. Just know where you’re going and why.

Wrapping Up…

Client attrition is never a fun subject. But understanding the top reasons clients leave their advisors can help mitigate the risk of attrition. On the other hand, sometimes clients leave and theirs nothing that can be done about it. Take some time to evaluate your firm, yourself, and the adivsors working with you. Are there areas that could spark a mass exodus? What can you do to improve these areas and retain your top-clients?

Friends, life is hard, but life is good. If you think long enough, you can always find a reason to celebrate. Managing client relationships can be frustrating, but they don’t have to be. By understanding the reasons clients leave, you can avoid the common pitfalls and make client retention at least financially simple. Hey, let’s go out and make it a great day!

Working toward the eight-figure exit is hard and lonely work that requires constant attention and adjustment. Reach out to our team to learn how we could help you along your journey.