3 parts of their practice advisers need to reassess

To thrive, 21st-century firms need to examine client loyalty, revenue streams and service

Financial advisers face some serious challenges: online competition, pressure on fees and an aging client base, to name a few. What are 21st-century advisers to do? Here are three things they should rethink and act on.

1. Client loyalty. Clients are often segmented by annual revenue or total assets, and those who invest the most get the most attention.

But there are other ways.

Advisers must determine how they measure client loyalty — perhaps by years with the firm or number of referrals — and rank clients accordingly.

Even if they haven’t invested additional assets, clients who have stayed with you through rewarding as well as difficult market cycles can be considered loyal. They have become part of the fabric of your business.

Clients who don’t have extra funds to invest might be sending referrals your way. That should be valued, especially considering that 41% of new clients come via referrals from family and friends, according to Cerulli Associates.

Such recommendations are the No. 1 source of new business — well ahead of professional referrals, which account for just 15%.

Looking beyond annual revenue or assets under management to measure loyalty is important if you want to keep clients. Clients who feel undervalued might walk out the door — and take their money with them.

2. Revenue streams. Many clients (especially millennials) don’t want to pay for what they don’t use or don’t need, such as asset allocation models readily available inexpensively or even free online. Asset allocation may no longer be your bread and butter.

The rise of robo-advisers is much like the late “90s ascent of discount brokerages. You might ask if they can survive, but whether they stay or go doesn’t matter ultimately.

The point is that robo-advisers are changing the conversation, just as discount brokers did with their free or low-cost trades.

Even your satisfied customers might say, “I saw an ad for a firm charging 0.15% of AUM; you charge 1.25%. Why?” (These are realistic fees for clients with more than $100,000 to invest, based on Betterment’s pricing.)

What can you offer that is valuable and that your client will pay for? You might need to re-examine your business model and consider transforming your operation to one that offers services based on financial planning in areas such as debt and stock option management, college planning or retirement.

In its latest “Advisor Metrics” annual report, Cerulli offers another reason to consider a fee structure that lets people pay for the expertise they need most: Money is going to be leaving your practice more quickly, because your clients are aging. Next year, for the first time, withdrawals in the retirement market are expected to outpace new contributions.

3. Great service. That means getting to know your clients so well that you can anticipate their needs.

What are their financial goals? What motivates them? What keeps them up at night?

When you order from companies like Amazon or iTunes, they let you know what other customers like you purchased or viewed.

Let’s apply that practice to advisory firms.

Say the stock market has a dreadful day or string of days. You might send all your clients an email to reassure them and encourage them to stay the course.

What about clients who don’t worry about the short term or who see a sell-off as a buying opportunity?

They probably don’t need a comforting email, but they might consider investing more in the market if you send them one suggesting attractively priced stocks.

How do you get to know your clients? By asking them a lot of open-ended questions:

At what point would volatility in the markets start to bother you? What are you willing or not willing to sacrifice to reach your financial goals? What is most important to you about creating wealth? What do you want to teach your children about money or finances? If you could accomplish only one thing in planning for your future, what would it be?

In addition, when your clients call to chat or pick your brain —rather than to invest more money —you should view that as a chance to build the relationship and understand their needs better.

That’s how you will know how to serve them and retain those valuable assets.

Wayne Badorf is head of intermediary sales for Wells Fargo Asset Management and president of Wells Fargo Funds Distributor.