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Why Client Retention Matters for Financial Advisors

Most financial advisors focus on acquiring new clients, but keeping existing clients is just as important.

Why? High client turnover:

  • Hurts profitability.
  • Damages your reputation.
  • Creates unnecessary stress.

The first two years are critical. Studies show that 25% of clients leave within the first 1-2 years of working with an advisor. The good news? Client retention improves over time - meaning the longer a client stays, the more likely they are to remain loyal.

So how can you improve client retention and reduce turnover?

It starts with understanding why clients leave and implementing strategies to keep them happy.

Why Do Clients Switch Financial Advisors?

Clients leaving have remained a thorn in the side of financial advisors – especially in the first few years.  

For instance – did you know that according to a study1 from Etrade Advisor Sales in 2019 – the average percentage of clients that leave during a given year is 20% within a year. And 25% within one-two years.

Or - put another way - roughly one-fourth of new clients may leave within the first two years.

Graph showing client retention rates for financial advisors over five years, highlighting that 25% of clients leave within the first 1-2 years


The good news is that as time goes on, retention rates also rise (meaning the average client generally sticks around longer).

Thus, the first two years are pivotal for a financial advisor.

Further evidence2 has shown that 80-90% of financial advisors seem to fail and close their firm within the first three years of business – implying that roughly 10% of financial advisors even succeed over time.

So why do clients leave?

Top Reasons Clients Leave:

  • Lack of communication – Slow responses, infrequent updates.
  • Mismatched advice – Poor alignment with financial goals.
  • Portfolio underperformance – Failure to meet expectations.
  • High fees – Clients don’t see the value for what they pay.

The good news? These issues can be preventable.

So, here’s how you can increase client retention and build long-term trust.

3 Strategies to Improve Client Retention for Financial Advisors

1. Communicate Proactively & Personally

It's essential for clients to reach out to you with their questions or concerns, but that should not be the only form of communication. While being responsive is crucial, proactive outreach is equally important.

For instance – according to a 2019 Y-Charts Report3 – three-out-of-five clients (80%) believe that more frequent, more personalized contact with their advisors would give them more confidence in their financial plans.

Survey results showing 63% of clients feel more confident in their financial plan with frequent and personalized contact from their advisor. Among respondents under 50, 77% said yes, compared to 45% of respondents over 50.

Figure 1: Y-Charts

Further, 75% of clients want their advisor to send them personalized updates.

·    In fact, in the same report, respondents ranked a “deep understanding of their goals” (60%) and “client communication” (59%) far above actual portfolio performance (47%).

Thus, the key takeaway here is:

  • Proactively reach out to clients with updates and insights.
  • Use a personalized approach that addresses each client’s unique financial goals. speak directly to your clients as if you're talking one-on-one, not addressing a crowd on your email list.
  • Establish regular check-ins, even when there’s no immediate issue, to build trust and rapport.

2. Offer More Than Investment Management (This is a Big One)

While portfolio performance and allocation matters, many clients want a financial advisor that offers more value.

This is why holistic (interconnected) financial planning is important – it hits more ways to improve client goals.

And there’s a big demand here that isn’t being met.

For instance, the Spectrem Group published a report4 in 2021 that broke down the services investors received, valued, and desired (aka what they wanted vs. what they could get).

Some highlights were:

  • Trust Services: 91% desire it, but only 12% receive it.
  • Estate Settlement Advice: 92% want this support, but only 11% receive it.
  • Charitable and Philanthropic Planning: Desired by 87%, but received by only 6%.
  • Educational Financial Advice: 82% want it, with only 6% receiving it.
Bar chart comparing financial services clients desire, receive, and value, including investment management, estate planning, tax planning, trust services, and insurance advice. The chart shows gaps between services desired (e.g., 90% for trust services) and services received (e.g., only 12% receive trust services).

Figure 2: eMoney (sourcing Spectrem Group)

Many clients today are seeking a comprehensive range of financial services and support, from investment management to estate planning and tax strategies.

Holistic financial advisors can play a vital role in meeting these needs and filling essential service gaps.

Put simply, if you can’t offer these key services, clients may start looking elsewhere for a financial advisor who can

That said, returns still matter. They’re essential for keeping clients content and helping their wealth grow.

However, demonstrating the overall value you bring throughout the client relationship can help them stay committed through the inevitable ups and downs on their journey to reaching their financial goals - wherever those may lie.

*Note: At Dunham, we offer financial advisors access to trust services and other holistic planning solutions. Contact us to learn more about how we can support your practice.

3. Manage Expectations Around Portfolio Performance

While investment performance is important, it's crucial to manage client expectations.

Most clients may understand that macro forces often influence returns. But a sudden black swan event – aka a random, unforeseen, large event (like COVID) – can be tricky to deal with.

The problem arises when clients are blindsided by their portfolio's performance – especially in times of volatility.

Thus, it's essential to establish a clear strategy and keep your clients informed about market volatility trends. If things start to go awry, reassure your clients, and remind them of their goals and your preparation for market downturns.

Some Strategies for Managing Client Expectations:

  • Establish a clear, long-term strategy that anticipates market volatility.
  • Regularly communicate market trends and how they align with the client’s goals.
  • Provide reassurance during downturns and remind clients of their objectives and your approach to managing risk.

Final Thoughts: The Key to Client Retention in Wealth Management

Client retention is just as important as client acquisition.

  • The first two years are critical - most client turnover happens early.
  • Proactive communication, holistic planning, and managing expectations keep clients engaged.
  • Building long-term relationships creates trust - and trust drives retention.

Want to strengthen your client retention strategy?

Contact Dunham today to learn how our solutions can help you build a loyal client base.

Source:

1.   https://www.fa-mag.com/userfiles/ads_2019/ETRADE_May_2019/AI_Report_Client_Retention_ver2.pdf

2.   https://deltawealthadvisors.com/blog/what-is-the-success-rate-of-a-financial-advisor

3.  https://go.ycharts.com/hubfs/YCharts_Client_Communications_Survey.pdf

4.   https://emoneyadvisor.com/blog/optimizing-service-expansion-for-your-financial-practice/


Disclosure:

This communication is general in nature and provided for educational and informational purposes only. It should not be considered or relied upon as legal, tax, or investment advice or an investment recommendation, or as a substitute for legal counsel. Any investment products or services named herein are for illustrative purposes only and should not be considered an offer to buy or sell, or an investment recommendation for, any specific security, strategy, or investment product or service. Always consult a qualified professional or your own independent financial professional for personalized advice or investment recommendations tailored to your specific goals, individual situation, and risk tolerance.

Dunham & Associates Investment Counsel, Inc. is a Registered Investment Adviser and Broker/Dealer. Member FINRA/SIPC.

Trust services offered through Dunham Trust Company, an affiliated Nevada Trust Company.

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