Why Clients Leave Financial Advisors (and How to Avoid It)

Losing clients can be a frustrating experience and when it happens to you, you may be left wondering what you could have done differently. There are a number of reasons why clients leave financial advisors and there may be more than one cause at work. Understanding some of the most common reasons why clients choose to move on can give you insight into how to better serve the investors you work with.

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Reason #1: Lack of Communication

Poor communication can send the wrong signals to clients. They may feel that they’re low on your propriety list and decide to take their assets elsewhere. Jason Steeno, president of CoreCap Investments and CoreCap Advisors in Southfield, Michigan, says communication breakdowns can happen at critical moments when a client might need their advisor the most.

“Oftentimes, advisors feel that when a client’s portfolio is underperforming or when there’s market turmoil, they shy away from reaching out fearing a difficult conversation,” says Steeno. In reality, they should be doing the opposite and overcommunicating with their clients when markets are down.

Steeno says that if nothing else, communicating during times of uncertainty can help advisors keep client fears in check and reassure them that their original investment strategy is still a good one. It can also be an opportunity for you to determine if your client has had a change of heart with regard to their risk tolerance so you can make adjustments if necessary.

Reviewing your current communication policies from a client’s perspective can help you pinpoint any trouble spots or gaps that might lead them to go elsewhere. You can also ask clients directly how you can improve communications, so they feel they’re being heard.

Reason #2: Goal Misalignment

The second reason clients leave financial advisors is related to the first. “It’s pretty clear when a client leaves that the perceived value they were getting from an advisor no longer meets their goals,” says Charles Bender, owner of Miami-based investment advisory firm Fiduciary Wealth Management.

The primary reason for this, says Bender, is almost always because the advisor didn’t go above and beyond to communicate their unique value proposition. If you’re only telling and not showing clients how you can help them to achieve their goals, they may doubt your ability to get them where they want to go.

If you’re not staying connected with your clients regularly, it’s possible that you may not have a thorough understanding of their goals or how they’ve shifted since you last spoke. That can put you at even more of a disadvantage since it’s difficult to formulate a plan for meeting goals when you don’t know what they are.

Reason #3: High Fees

Your clients may understand that your services aren’t free, but they may be tempted to look for a new advisor if they feel they could get a better deal elsewhere.

That can create pressure on you to adjust your pricing downward in order to be more competitive. However, that can diminish your profit margins and make it more difficult to scale. A better approach may be to reconsider the value you have to offer, as mentioned earlier.

Evaluating the kind of results you’ve been able to produce for previous and current clients can help you better understand what you bring to the table and whether your current fee structure is justified. And rather than repricing down, you may consider how you can add value so that clients feel they’re getting their money’s worth.

Reason #4: Poor Performance

Underwhelming performance is a common reason clients leave financial advisors. Your client may expect a certain rate of return, for example, and be disappointed when you’re not able to produce it. In that case, there are two dimensions to consider.

First, ask yourself whether the client’s expectations were realistic to begin with. If the client was expecting a 20% return on an investment that historically has maxed out at 12%, then poor performance is not necessarily a direct reflection on you or your services.

If you the client’s expectations were realistic, then it’s time to take a closer look at where your strategy might have fallen short. A lack of proper research, for instance, could lead to poor results. Fortunately, that’s something you can remedy.

For example, automating necessary but mundane tasks can free up more time to spend on research and fine-tuning client strategies. Investing in better analysis and measurement tools could pay off if it allows you to produce results that are more aligned with client expectations.

Tips for Preventing Clients From Leaving

Once you understand the reasons that clients leave, you then can find ways to do something about it. While your ability to keep clients will depend on a number of factors from the economy to what you say directly to them, here are a few tips that can help you keep more clients:

Listen to Your Clients: If you want to keep clients you need to understand them better. The best way to do that is by actually listening to what is important to them.
Be Active: Make sure that your clients know you exist. Be active in account management and don’t make them have to ask why you’re doing, or not doing, something.
Communicate: It’s important to constantly communicate with your clients if you want them to stay. You can have regular status checks with each client but you can also reach out and send firm-wide updates via email as well.

Overall, it’s not possible to keep every client but nearly everyone can improve their ability to keep more than they currently are.

Is It Possible to Get Lost Clients Back?

When a client leaves, you may be wondering if they’re gone for good. The answer can depend on what you do next. “It’s possible to draw them back by first finding out why they left,” says Bender. “Most likely, the advisor already knows the reason.”

If you’re aware of why a client chose to leave, you can take steps to address the problems that lead to their departure. That might be enough to convince them to reinstate you as their advisor. And if you’re clueless about why a client left, it may be helpful to reach out with a friendly email asking for feedback on what you can improve.

Steeno says winning clients back can be difficult, but it’s not impossible. If they’re still on your email list, for example, you can continue sending them market updates and newsletters. Checking in periodically could also be a useful tactic, as long as the client is open to receiving those calls.

Just be sure to consider the potential return you may get for your time when trying to lure old clients back. “What I’ve found is that much of that energy and attention is better spent in obtaining new clients,” says Steeno.

Bottom Line

Clients are the lifeblood of your business and it’s important to recognize their value. Understanding why clients leave financial advisors can help you to avoid making potentially costly mistakes. Prioritizing good communication, understanding your client’s goals, measuring performance and creating added value can all help you to retain existing clients while attracting new ones.

Tips for Growing Your Financial Advisory Business

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Expand your radius. SmartAsset’s recent survey shows that many advisors expect to continue meeting with clients remotely following COVID-19. Consider broadening your search and working with investors who are more comfortable with holding virtual meetings or spacing out in-person meetings.