The market turmoil of the last 18 months has caused investors to ask a lot of questions. Am I properly diversified and allocated to withstand additional market gyrations? Is my risk tolerance really as high as I think it is? Do I trust my financial adviser and those I’ve placed in charge of managing my wealth?

The answer to the last question — particularly within the past two years — rests largely on the issue of client service. Since no investor was immune from the market declines witnessed in 2008 and 2009, the issue of client service has become increasingly important to many investors.

The recent market turmoil has not changed the wealth management client service model; it has revealed it. Weak models have been exposed and strong models have withstood the pressure.

A strong service model has a clearly defined process. And while every service professional has a process, not all can readily identify or communicate theirs. For many, the process is merely a set of reactions to client concerns, questions and requests. But therein lies the problem, as such a reactive model inevitably leads to inconsistency in delivery.

For example, say an investor’s portfolio profile calls for a 70/30 mix of equities to fixed-income investments. Following the recent bull market run, the equities portion of the portfolio becomes over-weighted, and the investor has not objected as he/she is enjoying watching their overall portfolio increase in value. Therefore, no change to the equity/fixed-income model is discussed by either the investor or the financial adviser. Suddenly, the portfolio mix is 85/15. Is there a service process in place to rebalance the portfolio back to its original target allocation percentages? Without a detailed model, a financial adviser may find out that he/she has unknowingly subjected an investor’s portfolio to more risk than desired simply by not having a proactive process in place.

A well-articulated service process outlines deliverables, timeline and accountability for completion. This process can serve wealth management professionals as a guide during times of turmoil and as motivation when market activity hits a lull, ensuring consistency regardless of external circumstances. In short, managing wealth should be handled the same way as running a successful business. There must be a business plan defining your goals, consistent performance reviews to assess whether goals are being met, and accountability of every member in achieving these goals.

There are five important characteristics for every service process:

  • Repeatable — Consistency of service is oftentimes more important than the service itself. Whatever the model, an adviser or team must be able to apply the same definition and process multiple times for the same client or different clients.
  • Scalable — Whether the business is small with just a handful of clients or much larger with a broad, complex client base, a service model must be scalable and work for all clients. Tailoring service is inevitable and appropriate, but models that don’t enable an adviser to “franchise” the model are far too cumbersome.
  • Deliverable — While this characteristic is fairly intuitive, many businesses identify a service model that is unrealistic in its delivery structure based on time, resources and other limitations. Recognizing limitations and appropriately weighing the service needs of the clients with an honest assessment of resources is critical. The focus of the communications should certainly be centered on the clients’ best interests. However, over-promising and under-delivering is never a recipe for successful client service.
  • Measurable — Just as an investor needs to measure the results of his/her investments, so too should financial advisers be able to measure the results of their service. Don’t be fooled into thinking that such a measure is merely a reflection of client satisfaction. There are many ways — quantitative and qualitative — to measure client service. Retention, accountability, success achieving client goals, consistency of message, tone and frequency of dialogue are all factors that should be considered.
  • Proactive — Ensure the delivery of service occurs regardless of market conditions. Market lulls often draw advisers into a false sense of complacency. The discipline of consistently applying the pre-established service model pays dividends in the end.

In addition to these process characteristics, there are other important service functions such as real-time availability, open discussion and dialogue, and regular reviews of the clients’ long-term objectives. But it is the consistent execution and the extent to which advisers have built these functions into a broader, well-defined service model that separates the mediocre from the great.

The recent market turmoil didn’t change the fundamentals of wealth management client service as much as it emphasized it. Advisers who did not have a definable service model were often themselves traumatized by the unfortunate events in late 2008 and 2009, and were thus less effective in working in their clients’ best interests and in addressing their concerns. They were exposed, though exposed in a different way from their more successful industry peers.

Regardless of market activity, wealth management professionals who develop a strong client service model and apply it consistently will have success.

Arizona Business Magazine June 2010