Winning a client away from another advisor they’re already working with—I find it’s an increasingly common challenge for advisors who are trying to grow.
In the past, this was somewhat less common because a lot of new clients were previously do-it-yourselfers who didn’t already have an advisor. Or people who had just gone through some kind of wealth creation event, like selling a business or retiring and getting a lump sum rollover from their pension for the first time. In short, these were people who were looking for an advisor for the first time.
But recent research from Cerulli finds that more and more often, advisors are bringing in clients who already have a relationship with another advisor. That may be due to a number of trends. There’s the growing adoption of financial planning in the marketplace. More firms that used to only do work with high-net-worth clients have come downmarket. And from the other end of the spectrum, direct-to-consumer plans like Schwab and Fidelity, and now even Vanguard, are now rolling out their own advisor solutions to the clients that have used their existing products and services.
And this matters because the dynamics of winning a new client away from an existing advisor are different than just winning a new client who’s never worked with an advisor. I learned about this difference in a way that really hit home for me pretty early in my career. At the second firm that I worked at in the business, our marketing approach was to do seminars on revocable living trusts and estate planning and use that as a way to open the conversation about comprehensive financial planning.
At the time, consumers were even less familiar with revocable living trusts than they are today. Estate tax exemptions were much lower back in 2001. At only $675,000, any young couple with term insurance to protect the family for young kids had an estate tax problem and a potential probate issue. And so revocable living trust combined with estate planning conversations was a pretty compelling topic, and we brought in a lot of business that way.
We had one particular prospective client who came to one of our seminars. She was a recent widow who had a revocable living trust that her husband had set up prior to his passing, and she didn’t know what to actually do with it now that he had died. Her existing broker (he was a broker at a large firm that shall go nameless) had not done much of anything to help her as he was primarily her husband’s broker and not hers. She had no real relationship with him. And so we met with her and talked her through the situation in the hope that she would need to sell the estate.
And in this process, we discovered that her broker wasn’t taking very good care of her portfolio either. So this was back in 2001. We were still in the bear market and the unwind of the tech bubble. Her broker had been buying a lot of individual stocks, including a lot of the tech companies that were getting slaughtered at that point. And she was paying a small mountain load of transaction costs to the broker for each trade. It was arguably borderline churning.
And by the end of the meeting, it became pretty clear that she wanted to and needed to change advisors. She knew that when she moved over to our firm, we were actually doing financial planning and could introduce her to an accountant to help sell the estate, help her with all the administrative paperwork to move money around under the terms of the trust, and to fix her portfolio into something that was more diversified and at a lower cost. Our AUM fee was going to be materially cheaper than the volume of trading commissions that were already happening in her account at the time.
So she left our office at the end of the meeting with a plan to come back for a meeting the next week to sit down with the accountant that we had a good relationship with. We were going to bring him in to start the process of selling the estate and to begin the paperwork process to transfer accounts to manage the inheritance.
And then the day before the meeting was supposed to happen, she called and left a message after hours—after everyone had gone home, so we didn’t even get it until the morning of the meeting—saying that she needed to reschedule. No rescheduling date in the message, though.
So we called her back the next day, but couldn’t reach her. We called her twice more that week, and still couldn’t reach her. We tried to be nice. I mean, we weren’t pestering her. We had an accountant ready and waiting in the wings to start working with her to sell the estate and she had said she wanted to move forward with us.
After another week of leaving our messages, we finally got a message in response. And again, it was left on our voicemail after business hours. She said she had decided to stay with her current broker after all, thanks for our time, and that was that. She stayed with an advisor who hadn’t helped her with any of her problems, was just making terrible investment recommendations, and costing way more than what we would have charged her anyways, all of which we clearly showed her in the first meeting. That was who she was staying with instead of coming to work with us.
And I suspect most advisors have at some point had a similar experience, talking to a prospect who’s not being served well by their existing advisor who’s really just a product salesperson. They’ve sold them a bunch of stuff and may not even be good in the first place. And the prospect says they want to work with you and move forward, but then at the last minute, decides to stay with the former advisor or broker after all.
Have you had this happen to you, where you lost a prospect that you thought was certain to follow through because they balked when the time came to terminate the other advisor? Or have you even been the terminated advisor, where the client didn’t even want to deal with the situation so you just find out because one day the accounts transfer out and they’re already gone?
Why clients don’t leave bad advisors
Ultimately, what I’d failed to realize with this prospect is how hard it actually is for most people to fire their former advisor. After all, this is a relationship business. Most people don’t like to terminate relationships. They don’t like to fire people they have a relationship with, even though it may not be the healthiest relationship or they may not be terribly well served in it. For most people, it’s just easier to avoid the confrontation.
And that’s what was happening in this situation. I didn’t realize at the time, but it wasn’t a coincidence that the widow kept calling us after normal business hours to leave messages that she was rescheduling. Or that she wouldn’t take a direct call from us to reschedule, and then ultimately told us that she wasn’t going to work with us in another after-hours call.
She just didn’t like the confrontation. She didn’t want to feel like she was being put on the spot, so she avoided that confrontational situation with us. And avoiding that confrontational situation is also why she decided not to work with us because, simply put, she wasn’t comfortable firing her husband’s broker and terminating the relationship when the time came.
I don’t actually know how that conversation went. Maybe he pleaded with her that he would do a better job servicing going forward. Maybe she questioned the trading activity and he said he’d tone it down. Maybe she called out the trading commissions and he said he’d get a lower price on execution.
This was about a $1 million account, which is a sizable account for most advisors today but was a very sizable prospect 17 years ago. So I’m sure the broker did whatever he could do to preserve the relationship and keep the business. So he said he’d get better or give her better service or give her better pricing or whatever reasonable concession he could make to keep her as a client.
And that doesn’t even take into account the fact that, unfortunately, some advisors and brokers can be less than ethical in their tactics to keep clients. You know, maybe he tried to scare her with all the bad things that could happen if she went to us complete strangers instead of staying with him, the broker she and her husband had worked with all these years. Maybe he took a really aggressive tone in the conversation just to make her want to back down from the confrontation.
Maybe he tried to guilt her about leaving because he was the one her husband picked or that he needed her account to keep his job or make his numbers or feed his family or put his kids through college. I hope that wasn’t the case, but in my career, I have literally seen all of those situations come up as ways former advisors or brokers tried to keep their clients—some of them more than once.
And the mistake we made at the time, again, was that we underestimated how hard the former—or, in our minds, the hopefully soon-to-be former—advisor was going to try to keep her business. And even more important, we hadn’t done anything to prepare her for that challenge.
Preparing prospects to leave their soon-to-be-former advisors
So what should you do about this situation if you’re talking to a prospective client who’s going to be leaving that hopefully soon-to-be former advisor or broker to come work with you? You have to prepare them for that conversation. That may mean actually saying, “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 then just let them talk.
In practice, I find some prospects say, no, no, no, he’s done a terrible job with them. “We’re through!” To which I’ll say, “Great. How are you going to break the news?”
Because I actually want to see, are they going to send the advisor an email and avoid the confrontation? Are they going to call him and tell him?
And based on what I know about the client so far, I have to think about whether that’s likely to work out? You know, we certainly have some clients who I know will not have a problem confronting a former advisor who’s doing a bad job for them. They’re very comfortable with the confrontation. But for others, it’s an issue and they may say, “Oh, I hadn’t even thought about that,” and then they start reflecting on it.
And we might even extend that conversation a little bit further. “Yes, I know one of the reasons you’ve decided to work with us is that your former advisor charges you a lot more than we do. Have you considered what you’ll say if he offers to cut his fees to match us?” And then again, stop talking and just let the prospect talk through and process how they’re going to handle the situation.
Do they say, “Well, because actually if he cuts his fees, I’ll have to think about that?” OK. Well, then that’s a hint to us we have not sufficiently differentiated or demonstrated our value because it’s apparently just about price. Or do they say, “I don’t care if he cuts his fees, I’m done with him?” Great. Because once they’ve said it out loud to themselves, they’re much more likely to be committed to actually follow through on it and fire the person when the time comes.
Now, I know a few advisors who have entire scripts that they run with prospects around this. I talked to one who actually has his prospective clients roleplay with him: “If the former advisor says this, how will you respond? I’m going to ask it now, tell me what you’ll do. And what will you say next? What if you respond this way?”
Technically, that’s probably a good way to help clients bolster their courage, if you feel comfortable with it. But I have to admit, it’s a little bit too much for my style. Unless of course the prospective client just outright says, “I’m afraid he’s going to push me to stay. Help me.” And then maybe we’ll go a little deeper or practice.
But I do try to raise this question, and I think it’s really important: “If your former advisor tries to convince you to stay, have you given any thought to how you’re going to handle that situation? Or if the advisor offers to cut his fees to match us, have you considered what you’ll say?”
Or I might even just ask, “Hey, I’m just curious, how are you going to break the news to your former advisor?”
Just asking them the question and letting them talk through it, even if we don’t give any suggestions (after all, we have a certiain bias!) helps them to better prepare themselves for that conversation and potential confrontation. It protects them from being caught off guard and then tempted to back down when they unexpectedly find that their former advisor gets very proactive or sometimes outright aggressive in trying to win and keep their business.
In fact, some prospects decide to start transfers right away just to avoid confronting the former advisor. They just let him or her find out when the money leaves. For some, that’s more comfortable than any kind of confrontation. I know because unfortunately, it’s also happened to us one or two times over the years as well. Clients decided that they didn’t want to work with us anymore and were so nervous about telling us, knowing that we were probably going to make a pitch to keep their business, that they deliberately didn’t tell us.
We didn’t find out until the money suddenly transferred out. Or we got an email or we got an after-hours voicemail. Because they don’t want to feel the confrontational pressure of telling us face-to-face. That’s what most of us do. And again, the more that the industry shifts from our roots of product salespeople to actual advisors who have ongoing advice relationships with clients, the more this will matter in the future.
Now, the good news is that in general, the mere fact that someone is in your office talking to you as a potential new advisor is a good sign. They’re unhappy enough with their current advisor or broker that they’re considering whether to leave, or they wouldn’t be meeting with you in the first place. So your odds are good. That’s good news, at least.
But again, don’t make the mistake that I made in the early years. Don’t underestimate the real challenge and pressure that most clients feel in the moment when they have to break the news to a soon-to-be former advisor or broker that he or she is being fired and the relationship is being terminated.
Don’t underestimate how far a lot of people would go—including staying with very bad advisors and brokers—just to avoid that confrontation. Anything you can do to help prepare them in advance can make a big difference in bolstering their courage. Just pointing out that it will be a challenge and inviting them to think through how they’ll handle it, increases their confidence to actually terminate a bad advisor and follow through on hiring you when the time comes.
So what do you think?
Do you talk to prospective clients about how they are going to fire an existing advisor? Would you roleplay that conversation with a client? What strategies work best for individuals who wish to avoid conflict? Please share your thoughts in the comments box below!