Keeping clients is not always easy for financial advisors. A study by PriceMetrix found that higher wealth clients, or those with more than $250,000 in assets, are more likely to stay with an advisor they like, compared to lower income clients.
Higher client retention is associated with higher asset growth and higher revenue growth, but not all client attrition is negative either, the study found, since not all client relationships represent the same revenue opportunity for advisors.
PriceMetrix analyzed data for clients and advisors from 2009 to 2013. It found that the most critical time for advisors to focus on client retention and attrition risk is between one and four years. If clients stay for five years, they are most likely in it for the long-term.
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Small clients are less likely to stay with their advisor and having an excess number of small clients can negatively affect the retention of other clients.
PriceMetrix found that as household assets increase, the probability of retention increases. Households with less than $250,000 in assets are less likely to remain with their financial advisor than those with greater assets. A household with $100,000 in assets has a probability of retention of 87 percent, compared to a household with $500,000 in assets, where the probability of retention is 94 percent. For those investors with $1 million or more in assets, the probability of retention is 95 percent.
The clients who are least likely to stay with an advisor are low-priced, fee-only relationships and high-priced transaction-only relationships.
Pricing can also send clients packing, whether too low or too high, PriceMetrix found. Advisors who price their services too low may undercut client perceptions of value and those who price high run the risk of creating an insurmountable service expectation, the report stated.
Large clients display less price sensitivity than small clients and older clients are more likely to stay than younger ones.
In the past five years, annual household retention rates have been 90 percent or higher in the retail wealth management industry.
Clients with deeper relationships with their advisor are more likely to keep that advisor.
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