How to create a bond with your clients

Jul 05, 2023

In What do investors want from their financial adviser?, the behavioural finance team looked at data from 184 investors who stated the main reasons for firing their financial advisers:

  • 32%: Quality of financial advice/services
  • 21%: Quality of relationship with adviser
  • 17%: Cost of services
  • 11%: Unhappiness with returns
  • 10%: Felt comfortable handling their own finances
  • 9%: Absence of quality communication

Sheryl Rowling, editorial director of financial advice at Morningstar, shares her learnings as an adviser.

What creates a bond?

Having spent more than 35 years as a financial adviser in my own practice, I’ve unfortunately had my share of clients leaving (not a lot, but each one felt like a personal loss), and I’ve commiserated with peers when they’ve lost clients. The thing is, we all do our best for our clients. We take our roles seriously—and it hurts when someone leaves!

As Theodore Roosevelt said, “No one cares how much you know until they know how much you care.” There is no truer statement when it comes to financial advisers and their clients.

Finances tend to be highly personal because they are closely tied to people’s sense of identity, self-worth, and well-being. Once a client engages an adviser, it is a personal bond. And that bond will only be broken if a crack in the relationship grows into something large enough to break trust.

As an analogy, think of a close friendship. You’ve made an investment in the relationship and you have a bond. When your friend forgets your birthday, it’s a crack. After your friend apologizes, you forgive them and your relationship continues. This is because the bond has been nurtured over time and the trust level is strong enough to overcome small issues. But if your friend doesn’t apologize and then stands you up several times or talks behind your back, the crack grows into such a large crevasse that the friendship cannot survive.

Like a good friendship, a good client relationship can survive small cracks as long as there is a strong bond of trust and communication. The key is being aware of the small cracks while reinforcing trust through communication.

But none of this will work unless you truly care!

If you are concerned about losing your revenue stream, that’s not enough. You must be concerned with your clients’ well-being, knowing that they entrusted you with their life savings. If you can’t relate to each client as if they were your sibling, parent, or grandparent, your link with clients is merely a business transaction, not a true bond.

How do you show that you really care? It’s about knowledge and communication. To be a true fiduciary to your clients, you must continually expand your knowledge, hire top-quality people, and set your practice up to do the best job possible. And you must communicate and serve clients as if each is your most important client. You must keep in touch regularly, with emails, phone calls, meetings, newsletters, webinars, seminars, and client events. You must return phone calls and emails right away. You must take time, listen to your clients’ concerns and questions, and answer with thorough, well-thought-out, honest, individualized information.

It’s really a simple formula:

  • Care about your clients.
  • Do the best job possible.
  • Communicate!

For the most part, clients are not financial experts. Their money is very important to them, and they are insecure—especially at times of volatility. When the markets drop, they need reassurance. It’s not the portfolio loss that causes clients to leave, it’s a crack that needs attention.

What causes cracks?

  • Fear is an emotional reaction. Citing facts and figures will not mitigate these feelings. To counteract fear, you should be reminding clients of long-term strategy on an ongoing basis. Pulling out this justification only during down markets will not calm fears. If you have been reinforcing a steady approach to investing, during market downturns you should reach out to clients (a group email is fine) letting them know that you are on top of things—rebalancingharvesting tax losses—and that this is just normal fluctuation. Offer clients the opportunity to talk or meet. This will calm fears and strengthen bonds with your clients.
  • Insecurity is different from fear. It is more specific to the client’s particular situation—they are insecure about their long-term financial security. If you have sent an email to clients during a downturn, it is likely that the insecure clients will contact you. If they have not, you should know who those clients are to reach out to them! For these clients, remind them of their financial plan that took volatility into account. Offer to rerun their financial projections and their risk tolerance analysis. When they are reminded of the solid approach their strategy was based on, their insecurities will be eased.
  • Sometimes clients will question strategy. After all, according to Michael Kitces, “Diversification means always having to say you’re sorry.” Why? Because diversification will still result in portfolios declining in down markets and not increasing as much during up markets. I remember during the dot-com boom, a potential new client asked why he should invest with me to earn 8% when he could get 30% on his own? After a discussion, it was obvious there was not a match, so I wished him the best. Sometimes, you can’t keep a client. If they can’t handle the long-term strategy that they agreed to on the Investment Policy Statement (which you have, right?), it might be time to part ways.
  • When markets drop, fees feel more material to clients. Some wonder whether the fees are worth it. Again, if you haven’t been demonstrating your value all along, you’re going to have a tough time doing so when the market is down. Sending an email to clients reminds them that you are on the job. Also, be sure to communicate tax issues to them. Explain how their bonds are still paying interest and their stocks are still paying dividends. And show how diversification has protected them from extreme drops. More important, periodically summarize all the value-added services you’ve provided, such as mortgage advice, college funding strategies, tax planning, and so on. In the long run, clients won’t leave for fees. They will leave for exasperation.
  • Exasperation occurs when a client has lost trust. It can occur after long periods of not communicating, inattention to their accounts, no personalized attention, lack of thoughtful answers, or worse—unreturned emails or phone calls. Not paying attention to details leads to a lack of confidence and, ultimately, lost trust.
  • If a client thinks that their adviser lacks expertise or is not keeping up with industry trends, they might look for an adviser with greater expertise or more-specialized knowledge.
  • Incompatibility is another factor. I always say clients should look for the “four c’s” in an advisor: compensation (fee-only), competence (experience), credentials, and comfort. Because money is personal, comfort is important. Sometimes, clients might simply feel they are not compatible with their advisor’s communication style, investment philosophy, or other personal aspects. This can lead to a breakdown in the client-adviser relationship and lead them to seek out an adviser with whom they feel more comfortable.
  • Clients may choose to leave their advisers owing to life changes - personal or financial. For example, if a client moves to a new city, they might want a local adviser. Sometimes, when a client experiences a significant change in their income or financial situation, they may decide that they need an adviser with a different set of skills or expertise.

Clients will not leave advisers because of fees (as long as they aren’t unreasonably high), periodic market downturns, a hot tip, or even a referral from a friend. Clients who feel cared for and trust their advisers will continue to be clients. It is up to the advisers to protect their bond.

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