The lesser-known '4-year itch'

Advisers who want to hold on to their clients should boost their service efforts between the second and fourth year, because that's when individuals are most likely to bolt, new research shows.

It turns out clients rarely abandon an adviser during the first year they work together. During this “honeymoon period,” advisers retain 95% of clients, according to PriceMetrix research released on Monday.

That client retention rate falls to 74% between 12 and 48 months, the study found. The analysis is based on a database of 40,000 advisers using PriceMetrix practice management software products.

“Like you have a seven-year itch in a marriage, it's more like a four-year itch with adviser relationships,” said Patrick Kennedy, co-founder of PriceMetrix and vice president of the client and product group.

Especially through this period, advisers need to demonstrate to the client what they are worth “and what it means to have a financial relationship with them,” he said.

The research also concluded that the average adviser in North America is keeping 90% of his or her client relationships in any given year. Additionally, the advisers who have larger clients in terms of asset size are most successful at holding on to their clients, perhaps because advisers give larger clients more attention, Mr. Kennedy said.

Households with $100,000 in assets retain their adviser about 87% of the time in any given year, compared to households with $500,000 in assets, which have a retention probability of 94%, according to PriceMetrix.

The price advisers charge clients also appears to affect client retention, but not only in the way most people might expect. Advisers who price their services on the low side or the high side of average are more likely to lose clients.

A charge of between 1% and 1.5% of assets is the “optimal range,” according to PriceMetrix.

“It's important to get the price right,” Mr. Kennedy said. “Lowering the price to attract business is not necessarily a winning strategy.”

At the same time, those who charge too much “may be creating insurmountable service expectations,” said Doug Trott, chief executive of PriceMetrix.

The research also identified lower retention rates with younger clients.