The theme of Toronto CFA Society’s 2011 Annual Wealth Management Conference was “adapt or die”: what practitioners and firms must now focus on to succeed. Clients and their attitudes have evolved greatly since the financial crises of 2008 and 2009. Previously solid marketing approaches are no longer as effective, given the acceleration of changes in the investment industry.

Alfred Townsend, the founder and president of Training and Management Consulting Group, had a clear message for financial advisors: the future of your business will depend on your ability to understand and manage your clients’ perception of value, performance and risk. His presentation touched on some key themes for investment advisors:

• How can you attract the interest of prospective clients in this new environment?
• How do you make sure that clients understand your message and that you understand their needs?
• What are the effective sales tools that you need to know and how do you implement them?

Meet or exceed your clients’ expectations

Today, clients are looking for satisfactory value for the fees and commissions they pay. They want advice that always in their best interest and relevant to their family circumstances, and to be provided with high quality and trustworthy information for making financial and investment decisions.

That said, clients’ expectations are constantly changing, influenced by many factors, including: personal circumstances, health, market environment, other people (professionals/colleagues/family/media). Advisors can manage this with formalized, ongoing communications, i.e, once per month or quarter. (Advisors that are accustomed to once per year may not be doing enough anymore).

Do business with the ‘right” clients

Townsend stressed the importance of qualifying clients to create profitable long-term relationships. Traditionally, sales practices have involved asking clients about their investment objectives, understanding their time horizons and liquidity needs, and finding out about their risk tolerance, investment knowledge and situations.

However, what investment advisors really need to know is what the client perceives their investment needs are, and how realistic are those expectations. It is also important to understand the client from a behavioural finance perspective, i.e., the client’s emotional attitudes towards investing and their past experiences, as these will all combine to form the basis for their decision making.

To do this, Townsend recommends asking questions such as: “How do you make your decisions”, and “What online services do you use to get your investment info?” Go online and research their answers so that you are prepared.

Perhaps the most important will be what the client’s expectations and criteria will be with respect to performance, service and communication – and whether their financial needs/wants can be satisfied by the advisor’s investment philosophy, discipline and service model. Are they long-term investors? Will they be a source of qualified referrals (remembering that the best clients come from the best clients)? Is it a relationship based on mutual respect and trust?

Confused people don’t buy

Finally Townsend frequently made the point that more than ever it is necessary to use “client friendly” language in marketing materials, proposals and communications. Clients need to be persuaded to take action in their own best interest and using highly technical jargon will leave them confused or disengaged. For example: alpha is a commonly used term in investment circles.

Definition: a measure of the difference between a portfolio’s actual returns and it’s expected performance, given its level of risk (as measured by beta).

Client friendly explanation: A way to measure the value contributed by a portfolio manager.