In the past, financial advisors encountered many prospective clients who were either previous do-it-yourselfers who didn’t already have an advisor, or individuals who had just gone through a “wealth creation” event like selling a business or retiring and getting a lump sum rollover from their pension. Which means they didn’t already have an advisor. Increasingly, however, financial advisors are encountering prospects who already have a relationship with another financial advisor. And this distinction between working with prospects who already have an advisor and those who do not is important, because the dynamics of winning a new client away from an existing advisor are different than just winning a new client who has never worked with an advisor before!
In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, we explore why it is difficult for some prospective clients to fire an existing financial advisor (even when that advisor is not doing a good job), and what financial advisors can do to help prospective clients prepare themselves to switch away from an existing financial advisor!
Many financial advisors have had the experience of talking to a prospect who was not being served well by their existing advisor (or “advisor” who was actually just a product salesperson selling them a bunch of stuff that may not have even been very good for them in the first place), where the prospect says they want to work with you, but then, at the last minute, decides to stay with the former advisor or broker after all. Oftentimes these prospects may abruptly cancel meetings, start to communicate sporadically through only email or voicemail, or simply just stop communicating at all. Unfortunately, in many of these cases, it is likely that the prospect is struggling with how hard it is for most people to “fire” their former advisor. After all, this is a relationship business, and most people don’t like to terminate relationships and fire people they have a relationship with (regardless of whether it was the healthiest relationship to begin with). The key point: we often underestimate how uncomfortable it will be for prospects to fire former advisors, and, as a result, don’t do anything to help prepare these prospects for such potentially difficult conversations.
So what should financial advisors do about this? First and foremost, if you’re talking to a prospective client who is going to be leaving a soon-to-be-former advisor or broker to come work with you, then you have to prepare them for that conversation. One approach is just to say, “I’m so glad you’ve agreed to work with us, and we’re excited to start working with you. But I need to warn you that when you tell your former advisor you’re leaving, he’s going to try to keep your business and win you back. Have you given any thought to how you’re going to handle that situation?” And let the prospect talk through the challenge. Additionally, financial advisors may want to help clients think through scenarios such as what the client would do if the existing advisor offering to cut his or her fees to retain the client.
Because the reality is that by merely getting the client to talk through these scenarios (even without the advisor providing recommendations, which the prospective client could see as biased anyway), an advisor can still help a client better prepare themselves for that conversation. And, as a result, the client may be less likely to get caught off guard by an aggressive advisor who tries to retain their business (even after not serving them well in the first place), and less likely to be tempted to back down. Alternatively, prospective clients may even decide that it’s best to start the transfers or the new financial planning process with the new advisor now so that they don’t even have to confront the soon-to-be-former advisor, who will only learn once the money leaves.
Ultimately, though, the key point is to recognize that there is a real challenge and pressure that clients feel, in the moment, when they have to break the news to a soon-to-be-former advisor that he or she is being fired and the relationship is being terminated. Which means anything you can do to help them prepare in advance, even if it’s just to point out that it will be a challenge and invite them to think through how they’ll handle it – can make a big difference in bolstering their courage and confidence to actually do it, terminate their former advisor, and follow through on hiring you, when the time comes!