Importance of Communicating Investment Performance to Your Clients
CBX Perspectives – 3Q’18
According to a survey conducted among retail and institutional investors, one of the main reasons clients leave financial advisors is their inability to communicate or respond effectively. It is no secret that customer retention is essential for sustainable growth. A study conducted by Invesp, for instance, revealed that the probability of selling to an existing customer is at least three times that of selling to a new prospect.
To increase customer retention, financial advisors must fight an uphill battle; one made that much harder by the fact that the investment management industry does not rate highly on the trust scale. Thankfully, advisors can bridge that gap with their clientele by effectively communicating investment performance. It is known to help advisors accomplish (at least) three goals: demonstrate value being delivered, enable more trusting relationships, and create monetization opportunities.
Demonstrates Value Being Delivered
As a financial advisor, investors pay you for your professional perspective, analysis, and recommendations on securities. What you are selling is a service – expertise in investment decision making – that is intangible.
Still, your clients naturally expect you to use that knowledge to help them achieve their financial goals. While your expertise is intangible and unquantifiable, your actual returns are not. A thorough assessment of portfolio performance against some benchmark, be it the market as a whole, the returns of competitors, or steady progress towards a specific goal, is what the client needs to know that you are meeting expectations. Communicating investment performance to your clients, thus, is a critical aspect of demonstrating your value as a financial advisor.
Enables More Trusting Relationships
Trust is the most important influencing factors to the success of any relationship. As a financial advisor, you can earn your clients’ trust by having a transparent communication policy as it pertains to investment performance. This is easy enough when the clients’ expectations are met or even exceeded. The real test occurs when your clients’ portfolio underperforms, something that is bound to happen at least once to even the most skilled advisor.
Even when goals are not met, though, it is essential to communicate with your clients. Explaining why performance fell short of expectations and how you plan to turn things around is arguably just as important as reporting terrific portfolio returns. Selectively choosing when to communicate with your clients is likely to create distrust. Being fully transparent regardless of performance, on the other hand, will create closer, more trusting relationships.
Creates Monetization Opportunities
Once you have built a relationship with your clients based on trust, client retention becomes that much easier. Consumers are more likely to stick with what has worked for them in the past. They are also more likely to purchase new products or services from a brand with which they are familiar. Communicating investment performance can, therefore, create monetization opportunities with existing clients.
This strategy can also be used to attract new clients. Since lack of communication is one of the main sticking points for financial advisors, emphasizing open communication as being core to your business’ value proposition is a great way to differentiate yourself from your competitors.
How We Can Help
CBXmarket offers a portfolio reporting and monitoring solution for fixed income securities. Our automated reporting system allows you to effectively maintain comprehensive reporting across all of your client portfolios, enabling you to have more informed conversations while producing beautiful reports for your clients with two-clicks of your mouse. You can calculate and review investment performance more efficiently, so you can focus on what you do best: fulfill your clients’ needs.