Tom Burroughes
Group Editor
14 September 2011
Insight
Trusted wealth advisors manage 26 per cent more of client money and are five times more profitable than untrusted rivals, according to a new report that gives financial proof that it pays to win the confidence of clients over the long term.
With memories still raw of big market losses and financial scandals, developing a reputation for being a trusted advisor is a critical objective for wealth managers, argues a global report by Weatherill Executive Consulting, a firm established by veteran industry expert Bruce Weatherill, its chief executive.
In a positive result, the report found that 49 per cent of clients were satisfied with their wealth managers’ performance, up from 28 per cent in 2009. Some 66 per cent of clients say they are unlikely to sack their managers in the next 12 months, a large shift from the same question asked by Dow Jones in 2009, where only 21 per cent of respondents said they were unlikely to fire their managers.
“However, this 'good news' needs to be tempered by the fact that many clients have changed advisors over the last few years,” the report said.
The report found that a “surprising” 69 per cent of client respondents to the survey had been with their wealth manager for 10 years or less and 38 per cent for five years or less.
It takes on average six years for a person to achieve the status of a trusted advisor with a client, so rapid client turnover is a significant problem, the report, which can be read in full here, says. The report also found that trusted advisors have almost no client attrition, while their less trusted peers had a 21 per cent churn rate.
The report is sponsored by IBM; Family Wealth Report is a media sponsor. A total of 369 clients and 285 wealth managers responded to the survey connected with the report. Fieldwork for the survey was carried out between March and July this year. Detailed data packs of around 80 pages are available on a country-by-country basis, and can be ordered here.
Hard evidence
Bruce Weatherill said that while the importance of trusted advisors might be obvious, his report was the first to quantify the benefits of achieving this status in terms of profits and revenues.
"For the first time, it [trusted advisor importance] has been measured. It is now very clear in pounds, shillings and pence what the benefits are of being a trusted advisor," he told this publication. "There are huge benefits in doing so."
"Clients are beginning to react badly against continual moves by their relationship managers between wealth managers. Wealth managers must work hard to increase longevity of service of their relationship managers as this is a necessary prerequisite for trusted advisor status. This will ultimately be good for clients, good for relationship managers and good for wealth managers. Well supported and motivated relationship managers will give rise to more satisfied clients and better returns for wealth managers. The report provides a route- map for how this can be achieved," he said.
Among other takeaways from the 63-page report is that trusted advisors win an average of two client referrals each year compared to an untrusted advisor who obtains just one client. As recounted by this publication on a daily basis, staff movements in the industry are a constant feature, and yet high staff turnover is a problem for clients and firms alike. The report showed that 78 per cent of managers had been with organizations for 10 years or less, and 56 per cent for five years or less.
“Given that the research indicates that it takes on average six years for trusted advisor status to be achieved, wealth managers need to focus more on reducing staff turnover to increase the chances of gaining trusted advisor status,” the report said.
There is a wide gap between the key performance indicators (KPIs) of advisors and clients; KPIs are mainly around financial indicators, such as cost/income ratios, net inflows and share of wallet, while client KPIs focus more on investment track record, tailored service, level of trust and rapport with an advisor, the report said.
Turning to global themes, the report found that three quarters of all wealth managers said there will be more industry consolidation, and 43 per cent strongly agreed with this view. International business is seen as key – only 8 per cent said they intend to shrink their non-domestic presence.
Statistics used in the report are based upon participants’ responses to questions, using a 10-point scale with 1 being low and 10 being high. For the purposes of the survey, findings of 1-3: disagrees, unimportant or irrelevant to the question; 4-7: neutral to the question; 8-10: agree, important, satisfied with the question. Where findings refer to either trust or net promoter score (NPS), then scores work as follows: 1-6 (detractors, untrusted); 7-8 (neutral, indifferent), and 8-10 (promoters, trusted advisors).
