Client advisory boards assume greater role in wake of crisis

Insights and suggestions help improve retention during downturns, advisers say

Mar 27, 2011 @ 12:01 am

By Lavonne Kuykendall

The client advisory board, which some financial advisers have long used to cement key client relationships, is attracting more interest in the wake of the financial crisis, which left many advisers looking for ways to improve their businesses.

Around for decades, advisory boards, which typically consist of six to 12 clients who meet one to four times a year, provide input on issues ranging from customer service to investments. The renewed interest in boards springs, in part, from advisers' desire to retain clients who were upset by their portfolios' shrinkage over the past few years.

“In 10 years, we had two devastating bear markets, and when that happens you just can't go by the seat of your pants,” said Stephen Wershing, a consultant whose firm, The Client-Driven Practice, conducts advisory board meetings.

“In a bull market, you don't have to ask clients; they are making so much money, it doesn't matter,” he said. “After 2008 and 2009, knowing what your clients are worried about is an important thing.”

Most advisers who consider forming an advisory board back away quickly because they can be a lot of work. But advisers who braved the process and conducted meetings during the crisis said that clients provided valuable information about what they wanted, which helped advisers understand the need for frequent communication.

In some cases, the input led to a revamping of investment strategies.

Philip DeAngelo, managing director of Focused Wealth Management, had been thinking about setting up an advisory board since he first started in business, but it was the market's performance over the past few years that pushed him to act.

“We have always had clients who are vocal. In bad times, they are a little more vocal” and board meetings give them an opportunity to be heard, said Mr. DeAngelo, whose firm manages $230 million in assets.

“Being open and transparent is more important than ever,” he said.

Focused Wealth Management held its first client board advisory meeting this year, and the input provided led to the firm's development of a client advocacy program, Mr. DeAngelo said. In the program, advisers act as client advocates for one another's accounts, second-guessing investment strategies with the goal of improving the client's market position over time.

Vincent R. Barbera, a financial adviser with TGS Financial Advisors, has had an advisory board for 15 years. In the past, members met once a year, or whenever the firm planned to unveil something new.

But during the bear market of 2008, TGS held four or five meetings over the span of several weeks and invited different groups of clients to discuss the firm's communication efforts during that difficult time.

During those meetings, Mr. Barbera asked clients to explain their expectations of investment managers amid a bear market. Clients with conservative investment portfolios said that they experienced more volatility than they expected.

The company made changes in its mutual fund lineup as a result of the meetings, Mr. Barbera said. His firm now manages $225 million in assets.

The market downturn woke up advisers to the benefits of staying in touch with clients, said Martin Kurtz, president of the Financial Planning Association and president of The Planning Center Inc., a $200 million advisory firm that does not have a client advisory board.

Interest in having more contact with clients has continued despite the improved market, he said.

The Planning Center just finished a series of client focus groups, and Mr. Kurtz said that he is thinking of developing a client advisory board himself “at some point in time.”

As luck would have it, Emerson Investment Management Inc., a $530 million asset adviser, began putting together its first advisory board while the stock market was still rising. It held its first meeting in October 2007, just as the market began to fall. That turned out to be a propitious time to launch the group.

“What was invaluable to us was that they directed us to the types of communications they wanted from us” as the market continued to deteriorate, said Meghan DeTore, Emerson's manager of communications and business development.

The firm began holding small group meetings based on the advisory board's recommendations and conducted a conference call that was well-received.

Clients “needed to hear from us, so we boosted communication,” Ms. DeTore said. “We didn't turn and run when things bottomed out.”

E-mail Lavonne Kuykendall at lkuykendall@investmentnews.com.

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