Sustainability Pillar #4: Optimized client experience and portfolios

Every Wednesday since the Department of Labor (DOL) released its new “fiduciary” rule on April 6, 2016, we have published a deep dive on one of the four pillars of a sustainable advisory business. Past posts have focused on the importance of having a manageable number of client households, product inventory control and documentation of key process. This post focuses on optimized client experience and portfolios.

Optimized client experience and portfolios

Client satisfaction has always been a key ingredient of advisor success. After all, satisfied clients can become advocates, which helps grow advisory businesses (assuming the referred clients are high quality). Two key changes are currently underway in the advisory industry that arguably make a focus on maximizing client satisfaction even more critical going forward:

1. The advent of robo-advisors has commoditized investment portfolios, forcing advisors to differentiate themselves on the client experience they offer.
2. The DOL’s new “fiduciary” rule holds advisors to a fiduciary standard for qualified accounts, requiring deeper understanding of client goals, objectives, and risk comfort.

Naturally, the next question is, “What drives client satisfaction?” In our experience, the two critical drivers of client satisfaction are client experience and client portfolio.

Client Satisfaction = Client Experience + Client Portfolio

Creating a winning client experience

There are several steps advisors can take to create a winning client experience:

• High quality client discovery – which delves into the emotional aspects of the client’s money, motivations and goals;
• Quarterly wealth management reviews – which centers around a customized client engagement roadmap and progress towards the goals the client defined; rather than focusing on a performance report and market commentary
• WOW impressions and events – which are designed to demonstrate to the client the depth of your relationship and appreciation for it

The power of these three components of the client experience are amplified when they are intertwined and inform one another. For instance, compare these two scenarios: 

Scenario #1

An advisor identifies that the client wants to buy a second home. The advisor proceeds to create an appropriate financial plan to help the client achieve that goal.

Scenario #2

An advisor identifies that the client wants to buy a second home in Scottsdale, AZ because two of the client’s grandchildren, Chuck (age 9) and Teresa (age 5), live in the greater Scottsdale area. The advisor proceeds to create an appropriate financial plan to help the client achieve that goal – and subsequently uses the additional details uncovered in the discovery conversation to continually deepen the relationship with the client. For instance, in the quarterly reviews, the advisor discusses the portfolio’s performance in the context of progress toward the client’s goal of “buying a second home in Scottsdale to be closer to your grandchildren, Chuck and Teresa.”

What distinguishes the two scenarios? The depth of the client discovery and how the information was captured and used subsequently. In the first scenario, the advisor simply noted the elements of the discovery conversation that were relevant to create an appropriate portfolio. In the second scenario, the advisor captured the information in the client’s words (rather than in financial jargon) to inform not only the financial planning and portfolio selection.

Optimizing client portfolio solutions

Although the client experience often commands a higher value among clients, there still remains opportunity for advisors to deliver value within the portfolio. This is especially true given that wealth management should include a holistic approach to all aspects of wealth. Although the DOL “fiduciary” rule focuses on retirement accounts, advisors have the opportunity to practice the same standard in taxable accounts. One consideration in that part of the portfolio may be tax-managed solutions which are designed to help investors keep more, after taxes, of what they earn.