Elevate Wealth Achieves 92% Client Retention During Market Volatility
Executive Summary
Elevate Wealth, a registered investment advisory firm managing $440 million in assets under management (AUM), faced a significant risk of client attrition during a period of increased market volatility and economic uncertainty. To combat this threat, Marcus Williams, CFP, ChFC at Elevate Wealth implemented a proactive and personalized communication strategy that leveraged technology to reassure clients and address their concerns. This approach resulted in a remarkable 92% client retention rate, preserving $404.8 million in AUM and preventing an estimated $2 million in lost revenue.
The Challenge
The first half of 2023 presented numerous challenges for investors. Rising interest rates, persistent inflation, and geopolitical instability created significant market volatility. The S&P 500 experienced several sharp corrections, and anxieties surrounding a potential recession fueled client concerns.
Elevate Wealth, serving a diverse client base with varying risk tolerances and investment goals, recognized the potential for significant client attrition. A recent internal survey revealed that 47% of clients expressed increased anxiety about their portfolios' performance and the overall economic outlook. Without a proactive strategy, Elevate Wealth projected a potential client attrition rate of 15-20%, translating to a loss of $66 million to $88 million in AUM.
This potential AUM loss would not only impact revenue but also damage the firm's reputation and growth prospects. Losing clients would trigger a decrease in management fees, projected to be approximately 0.5% of AUM annually, resulting in a revenue loss of $330,000 to $440,000 per $66 million to $88 million lost. Furthermore, the negative word-of-mouth associated with client departures could hinder new client acquisition, further compounding the financial impact. The team at Elevate Wealth needed to act quickly and strategically to mitigate this risk. The projected 15-20% client loss rate could potentially have seen Elevate's AUM fall to around $352M-$374M (based on the baseline $440M AUM figure before the implementation of the improved retention strategy), a loss that would have been devastating.
The Approach
Marcus Williams, recognizing the urgency of the situation, spearheaded the development and implementation of a comprehensive client retention strategy centered around proactive communication and personalized support. This strategy consisted of three core pillars:
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Weekly Market Updates: Elevate Wealth initiated weekly market updates delivered via email and short video messages. These updates provided a concise overview of the week's key economic events, market trends, and portfolio performance. The updates were designed to be informative and reassuring, providing context for market fluctuations and highlighting the firm's long-term investment strategy. Marcus Williams personally recorded many of the video updates, adding a personal touch and enhancing client trust. An example of wording used was: "Despite recent market fluctuations driven by inflation data, our portfolios remain well-diversified and positioned for long-term growth. We are actively monitoring the situation and making adjustments as needed."
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Personalized Portfolio Reviews: Elevate Wealth proactively scheduled personalized portfolio reviews with each client. These reviews provided an opportunity to discuss individual client goals, risk tolerance, and investment strategies. During these reviews, advisors addressed client concerns, explained portfolio performance in detail, and made adjustments as necessary to align with evolving needs and market conditions. The team created custom reports for each client showing their current investment allocation versus their goal allocation, as well as historical performance vs. their benchmark.
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Stress-Testing Scenarios: Elevate Wealth leveraged sophisticated stress-testing tools to simulate the potential impact of various economic scenarios on client portfolios. These scenarios included factors such as a significant market correction, a recession, and rising interest rates. By visualizing the potential downside risks, advisors could help clients understand the resilience of their portfolios and make informed decisions about their investment strategies. For example, a scenario might show the potential impact of a 20% market decline on a client's portfolio, demonstrating the effectiveness of diversification in mitigating losses.
The overarching goal was to provide clients with the information and support they needed to navigate the market volatility with confidence and maintain a long-term perspective. The team also focused on consistently reinforcing the firm's commitment to acting in their clients' best interests, which helped to further strengthen trust.
Technical Implementation
Elevate Wealth's successful client retention strategy relied on the effective integration of technology to facilitate communication and personalize client experiences.
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Salesforce Financial Services Cloud: Elevate Wealth utilized Salesforce Financial Services Cloud to manage client communication and track interactions. This platform allowed advisors to record all client communications, including phone calls, emails, and meeting notes, providing a comprehensive view of each client relationship. The platform also enabled the creation of personalized reports and automated email campaigns to deliver timely and relevant information to clients. Salesforce was configured to automatically log all email communications with each client. Furthermore, using the platform's reporting functionality, Elevate was able to track the number of client interactions per advisor, and the overall client sentiment regarding the market conditions.
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Morningstar Direct: Elevate Wealth integrated Morningstar Direct to conduct portfolio stress-testing and generate performance reports. This tool provided access to a wide range of financial data and analytical capabilities, enabling advisors to assess the potential impact of various economic scenarios on client portfolios. The advisors used Morningstar's portfolio stress-testing feature to simulate the impact of a 20% market correction, a 5% rise in interest rates, and a prolonged period of inflation (3% for 3 years) on each client's portfolio. The results were then shared with clients during their personalized portfolio reviews. The platform allowed for the generation of visually clear reports illustrating the impact of each scenario on the portfolio’s projected returns.
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Calculations: To calculate the potential revenue loss, the firm projected their annual management fee, which averaged 0.5% of AUM across the firm. This percentage was applied to the projected AUM loss due to client attrition to estimate the potential revenue decline. The formula used was:
Projected Revenue Loss = Projected AUM Loss * 0.005(0.005 represents 0.5%). This allowed them to quantify the financial benefits of the client retention strategy and demonstrate the value of their proactive approach.
Results & ROI
Elevate Wealth's proactive client retention strategy yielded remarkable results, significantly mitigating the risk of client attrition and preserving valuable AUM.
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Client Retention Rate: Elevate Wealth achieved a client retention rate of 92% during the period of increased market volatility. This was a substantial improvement over the initial projection of a 15-20% attrition rate. This means that instead of losing $66 million to $88 million in AUM, they only experienced $35.2 million in client departures.
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AUM Preservation: The high client retention rate resulted in the preservation of $404.8 million in AUM. This mitigated the adverse effects of market volatility and ensured the firm's continued growth trajectory. The $404.8M was calculated by taking the initial AUM amount of $440M and subtracting the AUM lost due to attrition ($35.2 million), resulting in $404.8M AUM retained.
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Revenue Preservation: The preservation of AUM translated into an estimated $2 million in revenue. This was a direct result of the firm's proactive client communication and personalized support. This figure was derived from the 0.5% management fee applied to the $404.8 million in retained AUM, calculated as follows: $404,800,000 * 0.005 = $2,024,000. The success in retaining clients also positively impacted advisor morale and strengthened the firm's reputation in the community.
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Client Satisfaction: Post-implementation surveys revealed a significant increase in client satisfaction and confidence. 85% of clients reported feeling more informed and reassured about their portfolios' performance. The Net Promoter Score (NPS) increased by 15 points, indicating a significant improvement in client loyalty.
Key Takeaways
Here are key actionable insights for other advisors facing similar challenges:
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Prioritize Proactive Communication: In times of market uncertainty, proactive communication is crucial. Regularly communicate with clients to provide updates, address concerns, and reinforce your commitment to their financial well-being. Use multiple channels, including email, video, and personalized meetings.
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Personalize the Client Experience: Tailor your communication and advice to each client's unique needs and goals. Use technology to track client interactions, generate personalized reports, and deliver relevant information. Understand their risk tolerance and adjust their portfolios accordingly.
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Embrace Stress-Testing: Use stress-testing tools to demonstrate the resilience of client portfolios under various economic scenarios. This can help clients understand the potential downside risks and make informed decisions about their investment strategies.
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Quantify the Impact: Track key metrics such as client retention rate, AUM preservation, and revenue generation to quantify the impact of your client retention efforts. This data can be used to demonstrate the value of your services and justify your investment in client communication and support.
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Foster Trust and Transparency: Be transparent about market conditions and your investment strategies. Act in your clients' best interests at all times, and build trust by consistently delivering value. Transparency and trust are the cornerstones of a strong client-advisor relationship.
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