This is the second installment of a three-part series looking at client recruitment and retention issues.
RIAs report that their financial planning capabilities and the positive feedback from existing clients are among the top reasons their new clients picked them over other RIAs.
The revelation comes from new research examining the views of Financial Times Top 300 advisors.
Around 55% of the FT 300 RIAs surveyed by FA-IQ sister publication Ignites Research cited their financial planning capabilities as their primary competitive edge, while around 50% cited positive feedback from other clients. The RIAs surveyed were asked to cite up to three of the top reasons they were hired by new clients.
Rounding out the top five reasons clients chose their advisors are client servicing; reputation in the industry; and breadth and depth of investment strategies or products.
Ignites Research surveyed 192 advisors from the elite group in October. Those surveyed had a total of around $580 billion in client assets, averaging around $3 billion per firm, as of that month. Advisors make it to the elite group based on their scores in six criteria: AUM, AUM growth rate, years in existence, advanced industry credentials, online accessibility and compliance records.
Financial planning is one way RIAs tend to differentiate themselves from brokers and among other RIAs, so it tends to be a key reason RIAs are sought out by new clients, according to advisors.
However, Brian Vendig, Farmington, Conn.-based president and managing executive of MJP Wealth Advisors and one of the FT Top 300 RIAs, believes the key to attracting new clients is identifying their needs.
Perhaps financial planning capabilities rank high on the list now because that’s the consensus when it comes to client needs, but those needs could change, according to Vendig.
“For example, we have some clients who are working with us because they know we focus on tax efficiency as part of the financial planning solution or they know that they can come to us not only for investments but also for estate planning, medical planning or elderly care,” Vendig says.
“Clients appreciate that we are like their family office and they don’t need to have $100 million to have that type of service,” he adds.
Steven Check, Orange County, Calif.-based president of Check Capital Management and among the FT Top 300 RIAs, is somewhat frustrated that investment returns aren’t ranked higher among the top reasons RIAs are hired by new clients.
“Since we’re an asset manager, we care a lot about returns and how our returns get verified. Most money managers are already providing financial planning,” Check says.
Check Capital Management is focused on making money for their clients, says Check.
“We do that too, but we don’t charge for it and we don’t do it as extensively as other advisors do it,” Check says, referring to financial planning. “I know a lot of people like the elegance of financial planning, so I’m not surprised it’s in the top three. But in the end, it’s investment performance that counts.”
Check says most advisors create a financial plan that ends up with “extreme diversification” and that’s one reason those advisors don’t outperform.
Previously, FT 300 advisors including Check told FA-IQ about the toughest challenges they face in investing their clients’ money.
“I think clients at least initially are always kind of unsure about the markets and are really too interested in some of the macro stories that come out about the stocks might go up, might go down. And there’s a million reasons for why they might go up and down,” Check says.
“It’s our job to communicate what we own and why we own it for them. And then to help them kind of filter out all the noise that might make them feel uncomfortable about anything in terms of owning stocks,” he adds.
Robert Case, New York-based CEO of Ingalls & Snyder, says the challenges include “getting clients to open up and really make sure we understand their full financial picture.”
Often, advisors find out about other key details that have been left out in the financial planning process, according to Case.
“We don’t want to be doubling up on the same risk-return kind of exposures for the clients,” Case says. “It’s important to understand their whole picture.”