When musing over the customer retention issues facing IFAs, the message is
clear – it is not why but how. We all know and accept the (varying)
statistic that it costs eight times more to recruit a new customer than it
does to retain one. Although the argument is compelling, few firms have
addressed the issue.
A study carried out by Bain & Co shows that a 5 per cent increase in
customer retention will give, for a brokerage, a 50 per cent increase in
lifetime profits from a typical customer. For auto or home insurance, the
average increase is 84 per cent and for life insurance, it is 90 per cent.
Financial services firms with the highest profits are those with the best
customer retention rates.
This is a result of two factors – customer volume and the lifecycle of
individual customer profitability. Against a backdrop of increasing
competitive pressure, decreasing margins and market mergers, nurturing the
individual customer is pivotal.
So, who is this elusive customer? The one who takes out a 25-year
endowment policy? Or who usually pays an IFA for advice but sometimes buys
investments direct according to the latest league tables? For the IFA, this
fundamental question is difficult to answer.
Keeping tuned in to the customer lifecycle and landmark events is half the
battle. Those getting a redundancy package or a windfall, the
midlife-crisis brigade, recent fathers, the separated or newly widowed. You
will only learn of these by talking.
It is easy to send a newsletter periodically to every customer hoping for
the best but this is an impersonal approach and falls victim to decaying
database validity syndrome. Annual statements from a provider show the
policy status but do little to enhance the customer experience or engender
loyalty to either the provider or intermediary.
The answer is to promote active two-way communication. Simple concept,
daunting logistics but in our experience the best investment possible. How?
Open up. Make yourself available through multiple channels. Several IFA
groups have adopted such a concept. Willis National, admitting that, on the
whole, the IFA population has “not been good” at customer dialogue, is
implementing a multi-channel approach that helps communication face to
face, via phone or via the web. In Willis National's case its recent
acquisition by Bristol & West, it feels, will help this process by
The next logical step is to engage in dialogue. If you cannot achieve this
internally, seek partners who can help. Mine your data, too. Are you able
to monitor and measure customer churn or “share of wallet”? It is
measurable. In the same way that banks encourage customers to have multiple
accounts (which also helps to retain customers by making it harder to
defect), multiple products taken through an IFA should increase customer
One organisation has analysed its data creatively to find those with high
potential CLV (customer lifetime value) and is approaching them to engage
in consultation with its advisers. There is no pressure, naturally, merely
a quest to understand and to help.
The return on investment is tremendous. Customer satisfaction programmes
are also incredibly powerful and unveil true nuggets. A byproduct is the
verification and enhancement of the database, making other communications
more effective. Strength in numbers suggests that groups and associations
of IFAs should be able to collaborate to achieve this dialogue using
partners where necessary.
Against a backdrop of declining margins and competition, seek smarter ways
to understand, add value to and retain your client base. It is no longer a
question of shall we but how shall we?
Maggie Evans is head of marketing at iSky