Bear markets are often boom times for financial advisory practices angling to capture more clients, as investors who never used an advisor in the past suddenly think professional advice might be a good idea.
More important, however, is the large group of investors who have had an advisor—sometimes for years—and who decide to shift their accounts, often worth millions of dollars, to a new advisor. With that switch, these clients create a winner and a loser.
“We see more movement in bear markets than at any other time,” said Peter Mallouk, president and CEO of Creative Planning in Overland Park, Kan., which globally manages $225 billion in assets, $135 billion of which belong to private investors. Mallouk said the biggest growth years for his firm, acquired in 2004, were marked by Covid—“the best twelve months we’ve ever had”—and the Global Financial Crisis.
“It’s easy when the market is going up. There’s not a lot of money in motion, as clients will tolerate stuff,” he said. “But when they really start to suffer losses, and they see inaction and lack of communication, they’re more willing to move.”
The losing advisor may never know for sure why a client left, but the details are readily available. Just ask the winning advisor. The client is usually very forthcoming about what happened, said advisors who have been in this situation, and surprisingly performance is not the biggest issue.
While performance is often a prompt for investors to think about their advisory relationship, more often than not the critical factors are things advisors can actually do something about, well in advance of realizing a client is unhappy.
“Clients are looking at whether their advisor has kept the promises they made. They want to see that their advisor is being proactive and productive. And they’re valuing good communication,” Mallouk said. “Of the calls we’re getting now, 95% are for these three reasons—broken promises, lack of communication and lack of proactive ideas.”
Sam Taylor, president and CEO of Wealthview Capital in Jackson, Miss., said the onboarding process at successful firms is designed to be intimate and trust-building so that the advisor can quickly get to know the client very well in order to create an appropriate investment strategy that reflects that client’s risk tolerance and aspirations.
“Once they’ve revealed their secrets and biases and phobias, once they go through that, they’re not going to want to go through it again,” he said. “So for a client to leave, it often means something has ruptured that trust, or it wasn’t there to begin with.”
For example, he said, one of his new clients left their prior advisor because they had received very little contact from him since the account was set up—a couple of years ago. “That is a significant account,” he said. “I was a little shocked that the prior advisor didn’t do more to develop that rapport.”