Summit Retains 90% of Clients with Early-Stage Financial Plans

Summit Retains 90% of Clients with Early-Stage Financial Plans

Executive Summary

Summit Capital, a growing Registered Investment Advisory firm, faced higher-than-desired client attrition within the first year of onboarding. Recognizing that clients without clear financial plans felt less connected and confident in their long-term financial future, Summit mandated comprehensive financial planning for all new clients within the first 90 days. This strategic shift, powered by RightCapital, resulted in a client retention rate of 90% among those with early-stage plans, a significant 10% improvement, demonstrating the power of proactive planning and client engagement.

The Challenge

Summit Capital experienced a noticeable trend: clients who onboarded without a fully developed financial plan were significantly more likely to churn within the first 12-18 months. Prior to this strategic initiative, Summit’s overall client retention rate hovered around 80%. While that wasn't terrible, management recognized the significant impact of churn on long-term profitability and firm reputation.

Specifically, the data revealed that clients who only received basic investment allocation guidance at onboarding had an average AUM attrition rate of 15% within the first year. Consider a client, John Smith, who initially invested $500,000 with Summit. Without a defined financial plan addressing his retirement goals, college savings for his two children, and potential long-term care needs, John felt uncertain about his financial direction. He also received a competing offer from another firm promising faster growth with a different strategy. This, coupled with market volatility, caused John to withdraw $75,000 (15% of his initial investment) after just 10 months, taking his AUM down to $425,000. This represented a significant loss of potential management fees for Summit.

Furthermore, this attrition was especially pronounced among younger clients. Clients aged 35-45, representing a growing segment of Summit's book of business, often expressed concerns about balancing immediate financial needs (mortgages, childcare) with long-term goals. Without a clear, personalized financial roadmap, these clients felt overwhelmed and were more prone to seeking alternative solutions or simply disengaging from the advisory relationship. Summit estimated that acquiring a new client to replace one who churned cost the firm approximately $3,000 in marketing and onboarding expenses, making client retention a top priority. In addition, the clients who churned tended to be smaller accounts with an average of $250,000 AUM.

The underlying issue was clear: a lack of early engagement and a demonstrable value proposition beyond simple investment management. Summit needed to provide new clients with a compelling reason to stay, by showcasing the tangible benefits of comprehensive financial planning right from the start.

The Approach

David Park, a senior financial advisor at Summit Capital, spearheaded the initiative to address the client retention challenge. He proposed making the creation of a comprehensive financial plan a mandatory component of the onboarding process for all new clients within the first 90 days. This wasn't simply about creating a generic plan; it was about delivering a highly personalized roadmap that resonated with each client's unique financial situation and goals.

David's rationale was based on the following principles:

• Building Trust and Confidence: A detailed financial plan demonstrates Summit's commitment to understanding the client's needs and providing tailored solutions. This fosters trust and strengthens the advisor-client relationship from the outset.
• Defining a Clear Path: A well-structured plan provides clients with a clear understanding of their financial goals, the strategies to achieve them, and the potential challenges they may face along the way. This sense of direction reduces anxiety and increases confidence in the advisory relationship.
• Demonstrating Value Beyond Investment Returns: A comprehensive financial plan encompasses a wide range of areas, including retirement planning, estate planning, tax optimization, insurance needs, and debt management. This showcases the holistic value that Summit brings to the table, going beyond mere investment performance.
• Active Engagement and Collaboration: The process of creating the financial plan involves active collaboration between the advisor and the client. This encourages open communication, deepens understanding, and fosters a sense of partnership.

David first conducted a small pilot program, offering comprehensive financial planning to a select group of new clients. The results were overwhelmingly positive, with these clients exhibiting significantly higher engagement and retention rates compared to the control group. Based on the pilot's success, Summit implemented the mandatory financial planning policy firm-wide.

David and his team developed a standardized onboarding process that included:

1. Initial Consultation: A thorough discussion to understand the client's financial goals, risk tolerance, and current financial situation.
2. Data Gathering: Collection of all relevant financial information, including income, assets, liabilities, and insurance policies.
3. Plan Development: Creation of a personalized financial plan using RightCapital, incorporating detailed projections, scenario analysis, and recommendations.
4. Plan Presentation and Discussion: A comprehensive review of the financial plan with the client, addressing any questions or concerns.
5. Implementation and Monitoring: Ongoing implementation of the plan's recommendations and regular monitoring of progress towards goals.

The success of this approach hinged on delivering actionable insights and creating a sense of ownership and involvement for the client.

Technical Implementation

Summit Capital leveraged RightCapital, a powerful financial planning software, to streamline the creation and management of personalized financial plans. RightCapital's features were crucial to the success of the initiative:

• Comprehensive Planning Modules: RightCapital offered modules covering retirement planning, investment planning, education planning, insurance planning, and estate planning, allowing for a holistic assessment of the client's financial situation.
• Scenario Analysis and Monte Carlo Simulations: The software enabled advisors to model various scenarios, such as market fluctuations, changes in interest rates, and unexpected life events, to demonstrate the potential impact on the client's financial plan. Monte Carlo simulations were used to assess the probability of achieving specific retirement goals, providing clients with a realistic understanding of their financial outlook.
• Client Portal: RightCapital's client portal provided clients with secure access to their financial plans, allowing them to track progress, monitor investments, and communicate with their advisors.
• Integration with CRM: RightCapital's integration with Summit's CRM system allowed for seamless data sharing and streamlined workflow management.
• Tax Optimization Tools: The software incorporated tax optimization strategies, such as Roth conversions and tax-loss harvesting, to help clients minimize their tax liabilities.
• Insurance Needs Analysis: RightCapital's insurance module helped advisors assess the client's life insurance, disability insurance, and long-term care insurance needs, ensuring adequate protection against unforeseen events.

For example, when planning for John Smith's retirement, the RightCapital software was used to project his potential retirement income based on various savings rates and investment returns. The software also modeled the impact of inflation and taxes on his retirement savings, providing a realistic estimate of the income he could expect to receive in retirement. Different retirement ages were modeled, showing John the benefit of delaying retirement.

Furthermore, RightCapital allowed advisors to illustrate the impact of various investment strategies on the client's portfolio, using historical data and sophisticated algorithms. This helped clients understand the risks and potential rewards of different investment options and make informed decisions about their asset allocation.

Summit also trained all of their advisors on RightCapital, ensuring they were proficient in using the software to create and present financial plans. Advisors were given a list of required components and compliance considerations for each plan to ensure they were accurate and thorough.

Results & ROI

The implementation of the mandatory financial planning policy yielded significant improvements in client retention and overall business performance for Summit Capital.

• Client Retention Rate: The client retention rate among clients who completed a financial plan within the first 90 days of onboarding reached 90%, a 10% increase compared to the previous year. This translates to a significant reduction in client churn and a substantial increase in lifetime client value.
• AUM Growth: The improved retention rate contributed to a 15% increase in overall Assets Under Management (AUM) year-over-year. This growth was driven both by increased client retention and by existing clients increasing their investment with Summit after experiencing the benefits of comprehensive financial planning.
• Client Satisfaction: Client satisfaction scores, measured through regular surveys, increased by 20% after the implementation of the financial planning policy. Clients reported feeling more confident in their financial future and more satisfied with the level of service they received from Summit.
• Referral Rate: The client referral rate also increased by 10%, indicating that satisfied clients were more likely to recommend Summit to their friends and family.
• Reduced Acquisition Costs: The reduction in client churn resulted in a significant decrease in client acquisition costs. By retaining more clients, Summit was able to allocate more resources to organic growth initiatives and less to marketing and onboarding new clients. The estimated savings on client acquisition costs amounted to $50,000 in the first year.

For example, with John Smith staying with Summit after the financial plan was completed, Summit retained $425,000 AUM, and potentially much more as John continued to add to his account. And, John referred his friend to Summit, resulting in another new client account.

These results clearly demonstrate the tangible benefits of proactive financial planning and the power of building strong client relationships from the outset.

Key Takeaways

1. Prioritize Early Engagement: Make financial planning a core component of the onboarding process to build trust and demonstrate value from day one.
2. Personalize the Experience: Tailor financial plans to each client's unique needs and goals, ensuring they feel understood and valued.
3. Leverage Technology: Utilize financial planning software to streamline the planning process and provide clients with interactive tools to track their progress.
4. Focus on Holistic Planning: Go beyond investment management and address all aspects of the client's financial life, including retirement planning, estate planning, tax optimization, and insurance needs.
5. Communicate Regularly: Maintain ongoing communication with clients to review their plans, answer questions, and provide updates on their progress.

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