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How Advisors Can Prevent New Clients From Feeling Buyer’s Remorse | Globe & Mail

Advisors should talk to new clients in detail about how their assets will be transferred and any implications.

By Cameron Smith, Vice President, Private Wealth
October 4, 2023|4 min read
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By Brenda Buow

For many advisors, the challenge of growing a business isn’t just attracting new investors, but also bringing them and their assets on board – and keeping them.

Advisors need to ensure the initial transfer goes smoothly and warn of any costs, delays or potential hiccups that could happen during the process. They also need to manage the transaction’s emotional side to prevent their new clients from feeling buyer’s remorse.

“Managing the emotional aspect is equally important as the technical side,” says Norm Trainor, founder and chief executive officer at advisor coaching firm The Covenant Group Ltd. in Toronto.

The successful onboarding of new clients is increasingly important as investors’ assets grow amid the massive transfer of wealth from one generation to the next. Advisors are continuously seeking ways to increase their so-called “share of wallet” – the amount an investor has at one firm versus others – and retain clients for as long as possible.

But keeping clients is getting more difficult. Investors are less loyal to their advisors due to increased competition and more investment styles and choices in today’s market. Recent research out of the U.S. shows the number of American households with more than two saving and investing relationships has almost doubled to 64 per cent in 2023 from 35 per cent in 2012.

‘Over-communicate’ when onboarding clients

Advisors need to make onboarding a positive experience for clients, Mr. Trainor says. He likens the transaction to any major sales agreement in which the psychology of a buyer (the client) and seller (the advisor) are usually different.

“When that money comes over, the tension for the seller is reduced; but for the buyer, the tension has increased because now they put their trust in that other person,” Mr. Trainor says.

“The seller often assumes they’ve earned that trust. They haven’t earned it; they’ve only earned a portion. They will earn it based upon what they demonstrate after the sale.”

Mr. Trainor says successful advisors adapt and respond to the buyer’s psychology by anticipating and addressing client concerns.

“You over-communicate,” Mr. Trainor says. “That way, you eliminate or mitigate any surprises that might arise,” such as a transfer taking longer than expected.

Advisors taking on new investors can do little to control how the assets come to them from another firm, adds Karla Webster Gill, managing director and head of asset management distribution, Canada, at SEI Investments Canada Co. in Vancouver.

She says keeping clients in the loop about the transfer process is critical and points to Morningstar Inc. research showing that lack of communication and poor relationships are some of the main reasons investors leave their advisors. It’s not just because they’re unhappy with fees and return performance.

“That’s where advisors sometimes misstep, because they make [the transfer] seem easier than it is,” she says.

The technical side of asset transfers

Cameron Smith, vice-president of advisory services and client relationship manager at Nicola Wealth Management Ltd. in Vancouver, says advisors should talk to new clients in detail about how their assets will be transferred and any implications.

Examples include whether the assets would be sold before they’re moved over and whether the sales will trigger fees or capital gains. If there are capital gains (i.e. for non-registered assets), Mr. Smith says advisors can discuss different planning strategies such as retaining existing positions, triggering gains over more than one taxation year, or donating securities to registered charities to reduce or offset the tax hit.

“The goal is to provide a more bespoke experience, as opposed to just selling everything and transferring cash and starting from scratch,” he says.

Mr. Smith says advisors should also explain to new clients how their investment mix or asset allocation may change compared to their previous firm.

Some investors may choose to keep some of their assets with the previous firm or another firm, for instance, if a friend or family member runs it. Mr. Smith says advisors should respect that decision and encourage investors to provide information about those assets so that they can be included in a broader financial plan.

“We can’t really get granular from an asset allocation or estate planning perspective if we don’t fully understand the other investments that are being held,” he says.

Retention and referrals are the long-term goals

Once the transfer of assets is complete, Mr. Trainor says advisors should keep up a regular dialogue with new investors during the first few weeks and months to help them feel more at ease with their decision to switch firms.

“That investment of time is so important to eliminate any uncertainty and ambiguity. You want to affirm to the client that they’ve made the right decision and show them your commitment to building the relationship over time,” he says.

“Relationships either grow or die. If you know how to open the relationship, everything else becomes easier going forward,” Mr. Trainor adds.

Advisors who have good relationships with investors from the start are more likely to retain them as clients for longer, he says. The experience may also encourage investors to refer the advisor to friends and family.

“They become your evangelists or advocates,” which Mr. Trainor says can be some of the highest compliments for advisors.

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