Having been burned by the market more than once, investors now seem to be twice as shy about handing over their hard-earned money to a new financial adviser.
As a result, advisers report that the process of converting prospects into clients is taking significantly longer than it did in the past, with more time spent on interviewing advisers, doing more-in-depth re-search and asking more questions.
“Prospects are petrified and don't want to get burned again,” said Diane Pearson, a certified financial planner with Legend Financial Advisors Inc., which manages $375 million in assets.
It is easy to see why. The S&P 500 is down about 14% from its high in April and dropped 5% in August — taking millions of dollars of clients' retirement savings with it.
These days, converting a pros-pect into a client takes an average of 10 contacts (meetings, telephone calls or e-mails), up from six a year ago, according to Sales Benchmark Index LLC, a consulting firm that works with 964 advisers. Specifically, it now takes an average of 4.7 face-to-face meetings, up from 3.2 meetings a year ago, before a pros-pect becomes a client, according to the firm.
“Prospects are jittery and get cold feet,” said company president Greg Alexander. “It's taking a lot longer because prospects are blaming advisers for things that happened to them in the past.”
Evidence of investors scrutinizing advisers more carefully also comes from the Council of Better Business Bureaus. Last year, the bureau received 208,022 consumer inquiries concerning advisers, up 7.4% from 193,579 in 2008 and a whopping 29.8% above the 160,231 received in 2004, when the bureau began tracking such inquiries.
“People realize now there are good and bad advisers,” Stephanie Bogan, president of Quantuvis Consulting LLC, which works with advisers, wrote in an e-mail. “I have seen an increase in [prospects] meeting with more than one firm.”
In the past, Ron Rosselot, president of the $120 million Rosselot Financial Group, said that he would walk into a meeting with a prospect, and it was “implied [that] we'd manage their money.”
“It's not that way anymore,” he said. “They really want to know about our philosophy.”
Prospects are also more suspicious than they once were — especially those who had a bad ex--perience with their previous adviser, said John Vucicevic, an adviser at Bay City Financial LLC, which manages $20 million in assets.
“Because of the lies of some advisers, prospects are really checking out new ones,” he said.
Stephen Wedel, founder of Four Seasons Wealth Management, also finds himself being compared with prospects' previous advisers more frequently.
“Everything I tell them, they've been promised before, and they've had all of these broken promises,” said Mr. Wedel, whose firm oversees $450 million in assets. “Each time they put their
trust in an adviser they've been disappointed, so they're extremely skeptical.”
As a result, advisers are taking new steps to win the
trust — and assets — of prospects.
Mr. Wedel, for example, now makes it a point to introduce his staff and asks about the factors that led the prospect to leave their previous adviser.
“We're identifying the failures of their current adviser and doing everything in our power not to repeat that experience,” he said. “I'm promising them good service, and I'm making sure our whole staff is visible to them so that nothing is hidden.”
Others are simply making it a point to spend more time with prospects. By extending her initial meeting with prospects to two hours, from 45 minutes, adviser Laura Scharr-Bykowsky has increased her closing rate to 90%, from 70%.
“I'm really getting to know my prospects better than I have,” she said. “I want people to know it's not about me; it's about them.”
Ms. Pearson no longer talks about anticipated returns with her clients.
“I told one prospect that I can't promise returns. The only promise I can give is that I'll be open and honest,” Ms. Pearson said.
After several meetings, the prospect did become a client and later confided that she left her previous adviser because the adviser failed to live up to promises that he had made about how much she might earn.
“We've really been through difficult times,” Ms. Pearson said.
“As a result, we have no problem taking as many phone calls and meetings with prospects as are necessary to gain their
trust,” she said. “There's not anyone in a client's life with whom they talk about money as they do us.”
E-mail Lisa Shidler at [email protected].
