Preparing for the end of a client-adviser relationship

Business Health explores what to do when an established client relationship ends, as some financial advisers grow weary of the intergenerational weather transfer.

According to Natixis Investment Managers, 40 per cent of Australian advisers and 46 per cent of advisers globally say that the wealth transfer represents an existential threat to their business.

Some 45 per cent of Australian advisers and 43 per cent across the globe are also concerned they will not retain the assets from clients’ spouses or children.

Worldwide, one-third of advisers report that they’ve lost significant assets through generational attrition. Natixis stated: “When a client dies and leaves their holdings to a spouse or children, the relationship has to reset, and that puts assets under management at risk.”

Almost half of Australian advisers report they are concerned they won’t retain the assets from clients’ heirs, reporting retention of assets 71 per cent of the time when a spouse inherits, drastically decreasing to 38 per cent when children inherit.

As advice practices recognise that many of their longest standing client-relationships may be soon coming to an end, Business Health has unpacked how advisers can effectively prepare in advance.

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Enhancing the strength of current relationships through frequent and intentional communication is critical, it recommended.

“Even in the most settled, established relationships, a proactive ‘how’s things’ call will always be appreciated – even if the call doesn’t directly relate to business,” Business Health stated.

“Don’t assume everything is okay – no feedback or comment doesn’t always reflect a settled relationship. Communication always works – as long as it’s meaningful, positive and informative.”

Advisers should also be prepared to modify their arrangement terms and services if it is necessary to take on new clients to rebuild their client books.

For example, some key retention strategies include offering ancillary services, such as family trusts (54 per cent of advisers globally), providing personalised services including networking events (47 per cent), and even offering financial boot camps for next-generation heirs (33 per cent), Natixis identified.

Business Health encouraged advisers to appreciate and understand the client’s bigger picture, such as how industry M&A or regulatory changes are impacting them and, consequently, the knock-on effect on the client-adviser relationship.

Business Health added: “Circumstances may be out of your control, but a well-considered and planned response to change can minimise the risks and even create opportunities for new beginnings.”

Lastly, it recommended that advice businesses do not rush through the transition process when a client departs, but instead implement changes in a steady and considered way.

“Reactive changes usually don’t work. ‘Measure twice, cut once’ as the saying goes.”

While the wealth transfer does pose significant risks to an advice firm, it also offers substantial opportunities. Late last year, Australian Ethical found an overwhelming majority (77 per cent) of advisers who actively encouraged their clients to engage their children in the wealth transfer conversation saw an increase in client satisfaction and retention of half or more of their clients.

Irene Guiamatsia, head of research at Investment Trends, previously told Money Management that the vast majority of high-net-worth (HNW) individuals will be looking to pass down their funds, meaning advisers should build relationships with younger recipients or risk seeing a reduction in client numbers.

She said: “Many of those HNWs are at that certain life stage where they’re about to move into decumulation, meaning they will take their money out of the system. So advisers need to replenish the client pipeline and really look at the younger end as well.”