With investor confidence in the global financial markets at a severe low point, driven even lower last week by the crumbling of Wall Street giant The Bear Stearns Cos. Inc., planners are facing the challenge of how to maintain clients' confidence in the midst of the credit turmoil.
With housing foreclosures on the rise and a meltdown in the subprime-credit markets, the U.S has been in an economic slowdown for nearly a year, placing enormous pressure on the financial services industry.
Helping financial advisers maintain the loyalty of their clients during a down market is an issue for consultants such as Jim Kane, a senior fellow at The Brookside Group LLC, a Mendham, N.J.-based customer loyalty consulting company.
Rather than devoting resources to changes in practice management, preserving client relationships has become the priority for advisory firms, said Mr. Kane, whose company has worked with 12 advisory firms ranging in size from large corporations such as
Deutsche Bank AG of Frankfurt, Germany, and TD Ameritrade Holding Corp. of Omaha, Neb., to mom-and-pop operations.
Competency and integrity are not the only issues with which advisers must concern themselves, he said. Recognition, productivity, savvy about client needs and building good chemistry are also critical, he said. "All the work that we do is really focused on building loyalty," said Mr. Kane. "What builds loyalty is anticipating their needs."
In the aftermath of the 2001
recession, The Brookside Group has tripled its number of clients, an increase that Mr. Kane attributed to the realization by planners that they must seek organic growth. Building loyalty among existing clients can generate positive word of mouth about an adviser, even during down markets, Mr. Kane said, although he added that the challenge can be greater for smaller advisory firms.
"When the economy is bad the first thing I want to do is hang on to the clients I already have," he said. "Loyalty does that."
Keeping clients in the loop during a volatile economic cycle is prudent, said Ken Hyman, owner of Santa Barbara, Calif.-based wealth-management service provider Partnervest Financial Group LLC, who sends frequent newsletters and reports to clients to keep them informed.
"Advisers have to be proactive in communicating with their clients," said Mr. Hyman, whose firm has $1.5 billion in assets under administration. "When you are in times like this that are difficult, you need to have a systematic [structure] in place where you have ongoing dialogue with your clients."
Despite the widespread problems in the credit markets, Mr. Hyman does not see a great deal of panic among his clients, whom he believes remember how the economy bounced back after the dot-com bust seven years ago. "Generally, we're not seeing that clients are overly panicking but they are looking for reassurance," he said.
Because of the credit crunch, planners such as Paul Ahern, principal of WealthTrust-Arizona LLC, have been increasing their communication with clients. Quarterly newsletters and educational workshops are offered by the Scottsdale-based advisory firm, which manages $650 million in assets.
MORE COMMUNICATION
In addition, the firm sends letters to clients when economic conditions become particularly tumultuous, such as they did in February. WealthTrust also pushes for appearances by its advisers on the financial news channel CNBC in order to discuss the markets. When they are booked to appear, the firm e-mails alerts to its clientele.
"The most important thing to do is communicate," said Mr. Ahern.
In addition to trying to increase communication, WealthTrust planners also try to protect clients from down equity markets by placing 40% to 60% of their portfolios in fixed-income and alternative investments.
The communication efforts and investment strategies at the Arizona advisory firm appear to have paid off. Mr. Ahern says that despite the economic slowdown, he has received very few calls of concern from clients. He added that, during a
bear market, clients increase assets under management.
E-mail Andrew Coen at [email protected].
