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Advisors - February 4, 2019

Advisors: Do Clients Perceive Your Value?

As a registered investment advisor (RIA) there are two common methods for growing your firm:

Method 1: Grow AUM in current accounts.

Method 2: Grow AUM by adding new accounts.

Top advisors recognize that sustainable growth requires them to simultaneously focus on both methods.

In order to grow the quantity and size of accounts managed, advisors must define a unique and differentiated value proposition and effectively communicate it to both prospects and current clients.

Easier said than done.

We looked to revelatory data collected by several important industry studies to answer the questions advisors should be asking of themselves.

How do I differentiate my value proposition from that of other advisors?

In a study by the Financial Planners Association (FPA)’s, Defining and Communicating Your Value, 706 respondents (both FPA members and not) were asked what sets them apart from other advisors.

The top answer, chosen by 76% of those surveyed, is the “Ability to understand client needs and objectives”. The second most-selected answer was “client service”. The unfortunate truth here: if everybody has a superior understanding of client needs and provides superior client service, then no one does.

In an industry where advisors are increasingly competing for the same clients, it seems that understanding client needs and service are ubiquitous — assuming every advisor is as good at the above as they believe they are.

So advisors need a better way to differentiate themselves.

Last on the list, with 21% of responses, is “profile/brand awareness in my market”. Is branding the better route to differentiation?

The same FPA study asked advisors what information prospects would perceive from visiting their websites, a primary marketing tool for most. While 60% said their products and services would be easily identifiable, only 30% said a prospect could glean who the advisor’s ideal client is.

If your target market is medical doctors, shouldn’t your website, and all other marketing materials, be geared toward an audience of M.D.’s? If your ideal client is an urban millennial, are you doing enough to relate to that generation?

The factors that differentiate your firm and the abilities you seek to be known for should be explicitly and readily available in order for prospects and clients to be convinced. And in order to convince them, you must communicate effectively…

Am I effectively communicating my value proposition to prospects?

Advisors can tell prospects, “I add value,” until they’re blue in the face. Until you can answer how you add value in a concrete and compelling way, prospects are not likely to give you their business.

In a recent survey conducted by Ignites Research and Financial Advisor IQ, including 192 of the Financial Times Top 300 RIAs, advisors were asked which, and to what extent, client acquisition strategies contribute to firm growth.

Respondents said “referrals from clients” contribute to 36% of firm growth, twenty-one points more than any other strategy.

Not surprising — referrals are commonly considered one of the main drivers of firm growth; however, the margin between client referrals and other strategies should stress to advisors just how valuable current clients are when attempting to bring new clients into their firm.

Who would be most convincing when telling a prospect how you add value? Your clients who have witnessed that value! It can often be difficult or awkward to ask clients for referrals, but it is truly the most effective way to communicate your value.

What did the RIAs surveyed by Ignites Research say converted former prospects to new clients? “Positive feedback from other clients,” according to 50% of responses, and second highest on the list.

But after you’ve won a client’s business, how do you retain it? What’s preventing them from jumping ship for your competitor?

Read More:
How To Create Better Touchpoints with Clients
Millennials Don’t Use Advisors — 3 Ways You Can Change That
How To Avoid Distributions and Build Tax Efficient Portfolios

Is my value proposition fully appreciated by my clients?

Don’t forget about the clients you already have — this is a relationship business, after all. Just as prospects need to perceive value to be converted, clients must also perceive your value to remain clients. Advisors must find ways to remind clients their business is not being taken for granted.

According to research conducted by AbsoluteEngagement.com and cited in FPA’s “Defining and Communicating Your Value”, clients have a harder time perceiving value than advisors might hope.

While a combined two-thirds of the 1,000+ investors surveyed said they receive “Very High” or “High” value relative to the fees they pay their advisors, what about the other 33%? Few businesses could easily weather the loss of a third of their clients because they felt they were charged more than the value of the services rendered.

From the advisor’s perspective, when asked what sets them apart from other advisors, “investment process” and “breadth of investment expertise” were in the bottom half of all factors, receiving 38% and 35% of responses, respectively, according to FPA’s study. However, the third most-common reason advisors were fired, as chosen by Ignites Research survey responders, was “performance of portfolios”. Please read those points again, taking special note of the disconnect.

Where is the disconnect? Are clients really seeking better returns? Or are they just under-informed on the strategy behind their portfolio and what their expectations should be? Again, communication is key — setting expectations, educating, and not “over-selling” clients will help you retain clients through thick and thin.

Also in the Ignites Research study, 51% of RIAs said former clients had fired them because a “new financial advisor [is] believed to offer unique benefits.”

But do these clients need a unique benefit you truly do not offer? If you remember from the first section of this article, 76% of advisors possess the ability to understand client needs and objectives!

However, clients’ needs and objectives evolve over time. Homes are bought, children are born, and people retire. A client’s perception of value changes over time just the same. As an advisor you must proactively communicate how you plan to meet those changing needs.

While considering the insights gained from these important industry studies, advisors must ask themselves three questions — and answer them honestly.

How do I differentiate my value proposition from that of other advisors? Financial planning and advising are becoming increasingly competitive, and consolidations and breakaways both create a dynamic, evolving landscape.

Am I effectively communicating my value proposition to prospects? Your ideal client is ideal for a reason: you are exceptionally fit to serve their needs and objectives. Make it as easy as possible for prospects to learn and understand your value proposition

Is my value proposition fully appreciated by my clients? Adding value to your clients’ lives leads to higher retention, and it also creates a referral engine that will drive your firm’s growth for years to come.

YCharts is a comprehensive research platform that helps advisors differentiate their services, enables communication of value to prospects, and provides fully customizable client deliverables.

Explore our research and communication tools such as Model PortfoliosFundamental ChartsEmail Reports, and more by visiting www.ycharts.com

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