Financial Advisers Build Loyalty Beyond Relationships
Now that Bank Transfer Day has come and gone, some credit unions have been working hard to expand those new relationships centered on one facet that longtime members often tout: loyalty.
It’s likely the one characteristic that sets credit unions apart from other financial institutions when it comes to building strong initial ties.
Where loyalty may still have more room to improve is in the area of investments and financial planning, some experts have offered. Depending on a member’s needs, certain products and services could help form a foundation for long-term investment needs. Cogent Research said the push to establish loyalty to financial advisers is more pronounced.
“With the marketplace becoming increasingly crowded with new products and firms struggling to differentiate themselves in a meaningful way, strong brand loyalty not only enhances revenue potential but also improves profitability,” said Meredith Lloyd Rice, senior director at Cogent in Cambridge, Mass. “In the end, maintaining current customers is far more cost efficient than attracting new ones.”
Cogent recently took a look at aspects of the product and service experience that are most likely to affect adviser loyalty. Using a particular brand loyalty model, Cogent identified the overall relative importance of certain attributes to determine the extent to which these attributes function as barriers to or drivers of loyalty.
“Securing adviser loyalty to their brand is the holy grail of mutual fund, ETF, and variable annuity providers, as it builds the foundation for future consideration and continued investment, Rice said.
For instance, mutual funds are among those products that members are likely to be familiar with compared to other investment tools. In its research, Cogent said the vast majority (95%) of advisers currently sell mutual funds, however their overall allocation to the category declined to 34% in 2012 from 39% in 2011.
Advisers also reported working with more mutual fund providers; on average, 10.8 in 2012 compared to 9.9 in 2011 and concentrated fewer assets with their top three providers, which was 61% in 2012, down from 66% in 2011.
“With their slice of the overall adviser pie shrinking, it is critical for mutual fund providers to understand how to better retain existing relationships and what drives loyalty in this market,” Rice said.
With increased scrutiny of third-party vendors by regulators, credit unions and CUSOs might be placing a much higher premium on integrity when it comes to offering members more risky and innovative products and services. In its research, Cogent found that advisers also valued integrity and honesty along with financial stability as critical differentiators when it came to selecting a mutual fund provider to work with. Company investment philosophy and management style were just as important.
Rice said analyzing the drivers of loyalty by the level of advisor reliance on mutual funds demonstrates some key differences between light, moderate, and heavy users.
“‘Demonstrates integrity and honesty’ is far more likely to serve as a loyalty accelerant or differentiator among light producers who allocate 15% or less of their book to mutual funds,” Rice said.
Attributes such as “thought leadership and perspective” also functions as a positive differentiator among light producers compared to heavier producers who allocate at least 40% of their assets to mutual funds, according to Cogent.
Indeed, investors’ loyalty to their financial adviser has improved, and investors report entrusting a greater proportion of their assets to their primary adviser than they did a year ago, Cogent discovered. Additional evidence supporting the strengthening of investor loyalty is the significant increase in the confidence investors have in their primary financial adviser, which is up from 36% in 2011 to 40% in 2012.
This improvement is largely driven by those investors who are highly confident that their financial adviser is effectively managing their money, according to Cogent. Higher net worth investors with greater than $500,000 in investable assets reported stronger confidence in their adviser than the emerging affluent.
Beyond mutual funds, other products such as variable annuities and ETFs are also important to financial advisers who want loyal relationships with providers so that they can extend that loyalty assurance to their member clients.
“Product providers seeking to retain and deepen their share of assets with existing users need to focus on the key drivers of advisor loyalty, particularly among heavy product users,” Rice said.