Developing loyalty among customers should be the goal of all financial institutions, and that goal is particularly challenging during uncertain market swings or times when clients might be losing money.

Loyal clients are more apt to respond to up selling or cross-selling activities, are more likely to forgive mistakes or poor investment performance, and guarantee a steady flow of business rather than a constant requirement to bring in new customers.

Just like average American households, many of the HNW households are understandably nervous about the impact of the crisis on their own portfolios, and in many cases, their standard of living. “I’ve got clients taking out $5,000 cash to stuff in their mattress” said one affluent advisor. Hopefully that is hyperbole, but the affluent are definitely nervous.

Though Spectrem’s Investment Preferences shows the affluent are continuing to invest, though with caution, (with Cash seeing increased activity, and lesser but positive movement into Stocks), some may be taking advantage of the large drop in stock prices for short-term speculation. New headlines daily bring dire news of bankruptcy, a failing economy, financial records being broken, and government confusion and partisanship. Fifty-three percent of the HNW feel that their future investment plans will be influenced by the news about Merrill Lynch, Lehman Brothers, and AIG, not to mention Washington Mutual and Wachovia. Despite all of this, most HNW investors consider themselves extremely loyal. Nearly a third claim they would rarely if ever switch firms. Only 5 percent claim they are not loyal and would regularly switch firms.

Loyalty is, of course, linked to satisfaction levels. Those who describe themselves as more loyal are more satisfied. Failure to return phone calls was the most common reason for affluent individuals to leave their financial services company. But very important in this market is the fact that poor advice and poor investment performance are the primary reasons why those who switched advisors did so. Service problems were next, followed by expenses. The link between satisfaction and loyalty clearly exists.

However, whether an individual follows their advisor to a new employer may be more telling of loyalty than satisfaction levels. Another indicator of true loyalty may be whether individuals are willing to consolidate accounts. As financial firms and advisors work to develop client loyalty, the behaviors of individuals may be more telling than the satisfaction levels. There are several things that are particularly troubling for the wealthy. In all HNW wealth segments, at least 25% of portfolios are allocated to managed accounts. These accounts are professionally managed and a large portion of the overall net worth of a household. Managed accounts are generally invested in securities and some mutual funds, which are strongly influenced by the markets.

Though the affluent portfolio is generally diverse, these accounts are more susceptible to market swings. Also, real estate is one investment that is held by all affluent wealth levels. In fact, the mass affluent tend to be over-exposed to real estate than wealthier households. While the overall, the wealthier hold more total assets in real estate than do the mass affluent, it is a smaller percentage of their overall portfolio.

Many of the mass affluent could be severely challenged by the real estate crisis based on the percentage of their worth invested there. But it’s true that a 20% drop typically raises the anxiety levels of all investors, it prompts some to deviate from well-conceived investment strategies. The affluent have proven time and again that they have the wherewithal to avoid this particular pitfall, but may still need some hand-holding and calming of very legitimate fears, so they may make smart choices during these times.

Loyalty is developed in a number of ways, most of which are very simple, yet highly important. While investment returns, fees and expenses are critical, they are not the primary drivers of loyalty. Simply returning phone calls promptly is the most important thing advisors can do to develop loyalty. Advisors must also provide a contact if he or she is not available. Giving gifts at holidays, remembering things like birthdays and providing free tickets to special events don’t do much to develop loyalty. Each investor, however, is unique and develops loyalty differently.

Among those who have switched advisors in the past, the majority indicated it was for either poor advice or poor performance. Investors will show loyalty and be patient with their advisors when given poor advice or when they have poor performance, but when the performance and/or advice becomes too bad, even the most loyal will switch advisors. Service problems were less of an issue to the More Loyal group, highlighting their loyalty and their willingness to pass on problems and forgive rather than making a change.

For More Information: The Perfect Advisor: Hiring the Right Skills Sets 

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