Although there are a number of ways to deliver increased value to clients, the reality is that just delivering value isn’t enough — clients have to perceive that value.

But advisors often find that their clients fail to see the value they are receiving. Returns on a client portfolio may be well above the benchmark index, which should make the client happy. But, instead, the client switches to the next-door neighbour’s advisor because he produced better returns. Or you spend hours developing a financial plan for a client who is unwilling to spend the time to go through it and who doesn’t appear to appreciate the time you have invested.

Sometimes, we are dealing with clients who are fundamentally unreasonable and there is little that we can do to please them. More often, though, when we run into this gap between the value we deliver and the value clients perceive, the failure is ours. We simply have not done a good enough job of communicating the value clients are receiving.

The most common value gap relates to performance. Clients have unrealistic expectations arising from what they read in the newspapers, see on television (anybody want to compete against the expectations set by Jim Cramer’s TV appearances?) or hear from friends.

To counteract this, you need to start with explicit and frank conversations with clients about what they can expect. You might say something along these lines, for example: “There will always be people whose portfolios do better than yours — sometimes because they are taking greater risks; other times because they have invested in a hot sector. Working with me, your portfolio is unlikely to give you bragging rights in the short term because my goal is to create a broadly diversified portfolio that will do well over the long term and get you to where you want to go. In doing that, I aim to minimize extreme dips along the way. But that means you are unlikely to be putting up extremely hot numbers in the short term. Are you comfortable with that?”

Having had that conversation, you need to keep reinforcing that message at every opportunity. Just because you’ve had this conversation doesn’t mean clients will retain it.

One reason clients become dissatisfied with a performance with which they really should be happy is the failure to agree to a benchmark against which you will be measured. In the absence of a benchmark that you provide, clients will often create their own.

Again, you need to have an up-front conversation about this standard. It might be a 60/40 split of the stock index and the bond index, a long-term return of inflation plus 5% or an absolute number such as 8%. Whatever benchmark you choose, you and your client need to agree upon it. Then, you need to communicate the returns to the client in the context of that benchmark.

Note that benchmarks don’t always stay fixed — one of the things you need to discuss in your annual reviews is the benchmark against which you’re working and whether that continues to be the applicable standard for success.

Communicating returns in the context of an agreed-upon benchmark will help reduce the gap between the value provided and value perceived. That doesn’t necessarily mean clients will be happy — in part, because clients can still be lured away by the returns their brother-in-law or next-door neighbour has obtained (which, in effect, has become your client’s real benchmark) and, in part, because every advisor runs into periods of underperformance.

All you can do in the latter case is to discuss the fact that investors run into periods of short-term underperformance — perhaps showing examples of times you underperformed but also demonstrating the long-term returns for clients who stayed the course. The other thing to hope for, of course, is that the underperformance comes after clients have had a positive experience in working with you rather than coming right at the start of the relationship.

Even clients who obtain solid returns can become unhappy and leave because returns are only part of what drives satisfaction; the other contributors to satisfied clients are the experience they have in working with you and the relationship you have.

The single best way to get a reading on how clients feel about the returns they are getting and the experience of working with you is to ask them. The challenge is how to ask in a way that will get honest answers.

@page_break@One solution is to commission an outside firm to conduct a survey of your clients. Vancouver-based CI Corporate Insights Inc. works with the head offices of many of the leading investment firms to survey clients; Toronto-based Advisor Impact Inc. is often retained by individual advisors to canvass clients.

The alternative is to conduct your own survey. There are a number of online survey
tools from firms such as Survey Monkey.com Corp. and Market Tools Inc. , the latter of which operates the Zoomerang Web site. Both tool sets are inexpensive and relatively easy to use. The client survey linked to this story on the Investment ExecutiveWeb site was developed on Survey Monkey, which charges $20 a month for access to its survey-development tools and to use its Web site to gather responses to the survey. (To download this survey for your own use, click here.)

There are two basic approaches to conducting client surveys.

The first strategy is to canvass all your clients at one time. The advantage of this approach is that you get the results quickly and can identify where you stand across your client base as a whole. If you take this approach, consider telling clients that you are going to make a charitable contribution as a thank you to everyone who responds, or that you will be drawing one of the responses to win a dinner for two at a good restaurant. This also encourages clients to include their names, so that you can follow up if specific issues arise.

Once you have the results compiled, consider sending all your clients a note thanking those who responded and summarizing the results, along with an outline of any changes you are making in response to the feedback you obtained.

The second strategy is to use the survey to get individual feedback from clients when you meet. Whether you send the survey out to clients in advance of meetings or ask them to complete it at the start of meetings, by getting clients to put on paper their feelings and then discussing them openly, you are able to get a much better reading on client satisfaction than simply asking: “How happy are you with the job I am doing?”

A few things worth noting if you go this latter route. First, don’t be satisfied with any response less than “excellent” or “strongly agree” (the most positive responses for each question). While “very good” and “agree” are acceptable answers, they indicate there’s room for improvement.

Second, try not to be defensive. As hard as it may be to listen to what may seem to be unfair and unreasonable assessments, you should encourage clients to tell you how they really feel. After all, this is an opportunity for you to identify and deal with any misunderstandings, miscommunication or unrealistic expectations.

Third, in many regards, the most important question on the survey is: “What one or two things could I do to improve your experience of working with me?” Pay special attention to the answer to this question and use it as a jumping-off point for a conversation about what this client is looking for.

Finally, what happens after this conversation is critical. Often, the immediate response clients have is very positive. They are important enough for you really to care about their views. With this conversation, however, come expectations that you will not just listen to their opinions but also act upon them.

Be sure to leave the meeting with a clear understanding of what you will be doing as a result of this conversation. In some cases, you may want to send clients a follow-up note thanking them for sharing their views and summarizing what you will be doing as a result of your talk.

Remember, just doing a good job isn’t enough. Clients have to see you as doing a good job. By establishing benchmarks against which performance is measured and by getting honest client feedback on how you’re doing, you will increase the chances of getting a payoff for the good work you do for your clients. IE

Dan Richards, president of Toronto-based Strategic Imperatives Ltd., can be reached at
richards@getkeepclients.com. For a copy of the client survey referred to in this column and for other columns in this series, visitwww.investmentexecutive.com.