How advisors can earn client loyalty

Clients cling to advisors whose wisdom, judgment and integrity they respect. To earn such loyalty, disregard B-school dogma — and listen to Aristotle

How Advisors Can Earn Client Loyalty

Illustration by Taylor Callery

During my recent visit to a men’s clothing store to buy a suit, a particularly attentive sales clerk seemed to struggle between allowing me the privacy I needed to sort out my preferences and approaching to repeat her offers of assistance.

The young woman opined that one suit in particular (and, as it happens, the most expensive one I was considering) greatly enhanced my appearance. I thanked her for the compliment and went on comparing the suits and prices.

At long last, I selected one that I thought fit well and was more affordable than many of the others.

My young friend, who just minutes before was wowed by what a top-of-the-line coat could do for my middle-age-ravaged appearance, gravely intoned: “You mean you’re not going to take the Michael Kors with the peak lapel?”

It would be hard for me to fully convey just how profoundly this woman’s faith in me appeared to have shattered. Previously, she had been an inexhaustible fount of courtesy, warm smiles and kindly if unwanted advice. But her disappointed eyes and curled lip said it all: My undiscerning and miserly choices quashed what was to be a relationship of mutual respect.

Trust, respect and admiration are fragile — and can be wrecked as easily in a financial advisory relationship as in a clothing store. The good news is that there’s a lot that financial advisors can do to create robust relationships — by disregarding faddish business thinking and instead embracing wisdom that has stood the test of time.

Sales Tensions

We have all encountered experiences similar to my clothing store visit. With trepidation do I enter a bank to perform a quick chore. I want to get in and out, but I know the clerk’s very job depends on trying to cross-sell me financial services.

“I see you don’t have a regular bank account with us,” her computer prompts her to say.

“Correct. I’m just here to pay my mortgage,” I try to say politely, aware that my parking meter will soon expire while endeavoring to guard my patience from the same fate.

You get the idea. The business world we live in is a quantitative one — now more than ever. We are constantly playing chess with an algorithm that knows how we stack up against some sort of “relationship” potential.

While C-suite execs — in clothing chains and even more so in financial services companies — salivate over harnessing ever more “sophisticated” analytics programs to squeeze customers, today’s quantitative business world represents a degradation from past practices.

I still remember going to the bank as a kid and seeing the same teller year after year. Bankers knew their customers, knew their families, and the warmth and respect was usually genuine and mutual.

Somewhere along the line the corporate culture took a seriously wrong turn, perhaps with the wholehearted embrace in the 1990s of the creed of “shareholder value maximization” (SVM), a business philosophy that holds that the manager’s principal, or even sole, focus is to maximize return.

Though it became dogma at B-school and well ensconced in Fortune 500 corporations, independent thinkers have warned of its dangers.

Former GE CEO Jack Welch famously called SVM “the dumbest idea in the world.” And Johnson & Johnson still clings to its pre-SVM mission statement articulated in its 1943 IPO which reads in pertinent part:

“We believe our first responsibility is to the doctors, nurses and patients, to mothers and fathers and all others who use our products … Our final responsibility is to our stockholders … When we operate according to these principles, the stockholders should realize a fair return.”

Between its first and final responsibilities, the health products company included employees, local communities and the world community before it got to shareholders. As GMO’s James Montier has noted, J&J’s old-fashioned customer-comes-first philosophy has been nothing but a blessing to shareholders, who have done significantly better over the past 40-plus years than shareholders in IBM, a peer company that made a big deal of its embrace of SVM.

Beyond individual companies, not a few market watchers have noted that SVM played a role in triggering the global financial crisis. That is because executive compensation that is tied to stock prices incentivize executives to reach for the quick profits available to those who would dial-up short-term risk at the expense of long-term returns.

If the grasp of SVM has already reached clothing store sales clerks and nearly undid the global economy, you can be sure its money-grubbing observance is firmly entrenched at brokerage firms.

Wall Street Woes

Time was when broker-dealer pressure on advisors was mainly confined to production targets. Firms also pushed advisors to “strengthen” the cozy relationships with product providers. And the nastier firms used advisors to pimp their proprietary products.

In today’s SVM era, it’s no longer just product but “product mix” with which firms bludgeon their advisors.

Your firm has extraordinary lending resources. Have you heard that one lately?

One wirehouse advisor in the Midwest told me his firm’s head of national sales publicly lamented that his advisors weren’t lending as much as FAs at the other wires.

When the advisor later had the exec’s ear, he asked him privately why he thought that was the case.

The candid response is either a sign of things to come, or a sign of the times already, depending just how “advanced” your own firm is.

“Management at those firms are much more aggressive about getting in front of the FAs and telling them this is what you have to do,” he told the advisor.

Most likely, none of this is news to you. Your bonus structure already includes incentives for hitting the target number of loans. Or perhaps you are encouraged to prospect with insurance products.

Regardless of the specific “capabilities and resources” you are supposed to be enthusiastic about, the self-destructive short-termism of SVM only serves to alienate decent advisors who understand that credibility is a zero-sum game.

If your professional expertise lies in, say, retirement planning and you’re suddenly pushing loans — even if it’s a good loan product — you are subtracting from your authority as a retirement planner.

In the client’s mind, if you’ve got loans to sell, then the retirement advice you’re offering is also mainly about the retirement products you’ve got to sell. Your credibility will suffer.

While all this should be simply a matter of common sense, true understanding comes from knowing not only how things are, but why they are. And no less than Aristotle addressed himself to this important issue in his “Nicomachean Ethics” — probably not on the required reading list in business schools these days.

Aristotle’s Advice

The Greek philosopher, whose genius lay in his defining and classifying of the subject under contemplation, describes three types of bonds of affection. (The Greek word he uses, philia, is usually translated as love; but as we’ll see, philia has broader meaning than “love” has in English, and includes business relationships, which is our purpose here.)

The most basic kind of relationship is utilitarian. In contemporary English, if you’ll pardon the mix of languages involved here, that might best be described as quid pro quo, a term of Latin origin we use to describe a relationship motivated strictly by self-interest. I scratch your back, you scratch mine. Or in advisory terms, I invest your money in mutual funds and you pay me my fee or commission.

In broker-speak, this is called a transactional relationship. Your manager or trainer has probably (hopefully) already advised of the limitations of such a relationship, but Aristotle addressed this over 2,300 years ago, explaining that this kind of philia is weak since once the motivation triggering the relationship (say, the investment in mutual funds) is gone, the relationship becomes inactive — at least until a similar motivation reactivates it.

What’s more, he noted that this lowest level of relationship involves the greatest degree of complaint and quarrel. If the mutual fund does not perform well — absent a degree of personal trust and admiration — its purveyor may come under suspicion.

A second and higher level of relationship is one of enjoyment. This relationship has a more personal dimension. The two friends enjoy each other’s company and share hobbies or interests. In advisory terms, this might include advisors who build their practices on a niche, such as a shared passion for wine, golf, gardening or perhaps more specifically, Asian-American engineers or divorcees worried about retirement.

While these relationships are “stickier” than mere transactional relationships, Aristotle warned that when the source binding the friends weakens, so too does the relationship.

Poor or poorly explained portfolio performance may sober up a wine enthusiast client; a client in a golf-oriented practice may find a new hobby; a divorcee may remarry; an Asian-American engineer may detect a problem in his advisor’s investment management and find a new solution.

The highest level of philia Aristotle describes is a friendship of virtue, by which the philosopher means that the friends admire each other’s personal qualities. As long as each party’s character endures, the relationship endures.

In advisory terms, this means that the client admires the advisor for his wisdom, judgment and integrity and the advisor in turn respects the client for his or her unique qualities. This also implies mutual selectivity. The admirable advisor does not want an un-admirable, even if wealthy, client.

If you haven’t already guessed it, each of these levels of relationship is progressively harder to achieve. You can’t just look at the menu and say ‘I’ll take ‘C.’”

Rather, advisory relationships exist within a pyramidal structure, with a utilitarian base, an enjoyment-centered middle and a mutual admiration society at its peak. To reach that peak, an advisor must work to scale that pyramid, and the primary work involves working on him- or herself.

Being Admirable

Long-term success means learning to listen, question and analyze; developing professional knowledge and core beliefs; knowing yourself; knowing what you don’t know; staying positive, which is an essential element of self-confidence; seeking counsel from others; developing peer relationships that allow you to test the value of your ideas through honest feedback; sharing your own knowledge with others; integrating admirable qualities into your character; disciplining yourself; persevering; raising your self-esteem, through giving, protecting, showing responsibility; sensitizing yourself to others’ pain.

Many years ago I sat down with one of the biggest advisory coaches in the industry, who puts on very costly training programs for wirehouse and other firms. I remember asking him why his programs didn’t address issues of the kind enumerated above.

The highly compensated trainer, who has seen countless advisors either succeed or fail over decades, thoughtfully replied:

“You know, the soft skills [as he referred to them] probably make the biggest impact on advisors’ success, but that’s not what people pay for.”

In today’s SVM environment, brokerage firms seem unable to avoid the powerful incentives toward quarterly performance. But remember, short-term thinking requires them to be long-term thoughtless.

Don’t let your firm’s favorite metric, revenue per advisor, distance you from your clients. The next market crisis will bring advisors’ character flaws and inadequacies into sharp relief, even as it strengthens the standing of the most admired advisors.

Your mouth can only convey what is in your mind and heart. It’s not sales training but rather character building that makes an advisor admirable.

Gil Weinreich, previously Research’s editor for 18 years, provides perspective for advisors seeking personal and professional growth at

Repost from article, “How advisors can earn client loyalty” on Aug 31, 2015 by GIL WEINREICH