Custom Client Health Score: Proactive Retention Strategy

Custom Client Health Score: Proactive Retention Strategy

Executive Summary

Montgomery Retirement Solutions, a growing RIA managing over $500 million in AUM, struggled with reactive client attrition management. Golden Door Asset collaborated with them to develop a custom client health score dashboard, integrating various data points to identify clients at risk of churn before they explicitly expressed dissatisfaction. This proactive strategy led to an 8% reduction in overall client attrition within the first year, significantly improving profitability and AUM retention.

The Challenge

Montgomery Retirement Solutions prided itself on personalized service, but their client retention strategy relied heavily on reactive measures. Advisors were often alerted to potential attrition only after a client had already initiated the process of transferring assets or terminating their relationship. This late-stage intervention proved ineffective, leading to significant revenue loss.

Specifically, in the year prior to implementing the health score, Montgomery experienced an average client attrition rate of 12%. Analysis revealed that a significant portion of this attrition stemmed from preventable issues. For example, a client with a $750,000 portfolio, frustrated by a perceived lack of proactive communication during a market downturn, transferred their assets to a competitor. Another client, holding $300,000 in managed assets, left after feeling their evolving retirement goals weren't being adequately addressed following a significant life event.

The lack of a proactive system meant that Montgomery was often blindsided by these departures. Advisors were spending valuable time attempting to salvage relationships already on the brink, rather than focusing on nurturing and strengthening existing client connections. This reactive approach also negatively impacted morale within the advisory team, as advisors felt powerless to prevent client attrition. Furthermore, the cost of acquiring new clients to offset attrition was substantial. Montgomery estimated that acquiring a new client with a similar AUM required marketing and sales expenses averaging $5,000. With an annual attrition rate of 12% on a base of 200 clients, they were losing approximately 24 clients annually, representing a potential revenue drain of $120,000 in acquisition costs alone. The challenge was clear: Montgomery needed a proactive system to identify and address client concerns before they led to attrition.

The Approach

Golden Door Asset partnered with Montgomery Retirement Solutions to design and implement a custom client health score dashboard. This dashboard was built on the principle that client satisfaction and retention are driven by a complex interplay of factors, not just investment performance. The approach involved a multi-faceted strategy:

1. Data Integration: The first step involved integrating disparate data sources into a centralized system. This included data from Montgomery's CRM (Salesforce), their custodial platform (Schwab OpenView Gateway), internal financial planning software, and client satisfaction surveys.

2. Key Performance Indicator (KPI) Identification: Working collaboratively with Montgomery's leadership team, we identified the key performance indicators that were most indicative of client health and potential attrition. These KPIs were categorized into several key areas:

   • Engagement Frequency: Tracked the frequency of client interactions, including meetings, phone calls, email exchanges, and website logins. A decrease in engagement was flagged as a potential warning sign.
   • AUM Changes: Monitored significant withdrawals or transfers of assets. While some withdrawals were expected (e.g., for retirement income), large or unexpected withdrawals were flagged for immediate review.
   • Life Events: Captured significant life events such as retirement, job changes, marriage, divorce, or the birth of a child. These events often trigger changes in financial needs and priorities, requiring proactive communication and adjustments to the financial plan.
   • Survey Feedback: Incorporated data from client satisfaction surveys, focusing on areas such as advisor responsiveness, investment performance, and overall satisfaction with the firm's services.
   • Financial Plan Adherence: Tracked how well clients were adhering to their financial plans, including savings rates, spending habits, and investment allocations. Deviations from the plan were flagged for review and potential intervention.

3. Health Score Calculation: A weighted scoring system was developed, assigning different weights to each KPI based on its perceived importance in predicting client attrition. For example, a significant AUM withdrawal might carry a higher weight than a slight decrease in engagement frequency. The overall client health score was calculated on a scale of 0 to 100, with lower scores indicating a higher risk of attrition.

4. Threshold Definition: Specific thresholds were established to categorize clients into different risk levels (e.g., High Risk, Medium Risk, Low Risk). These thresholds were determined based on historical data analysis and adjusted over time to optimize accuracy.

5. Proactive Intervention Strategy: A clear process was defined for responding to clients identified as high risk. This included:

   • Advisor Notification: Advisors were automatically notified when a client's health score fell below the High Risk threshold.
   • Root Cause Analysis: Advisors were instructed to conduct a thorough review of the client's situation to identify the underlying reasons for the low health score.
   • Personalized Communication: Advisors were required to reach out to the client within a specified timeframe to address their concerns and offer personalized support.
   • Plan Adjustment: If necessary, the client's financial plan was adjusted to better align with their evolving needs and goals.

This structured approach empowered Montgomery's advisors to proactively address potential issues before they escalated into attrition, fostering stronger client relationships and improving overall retention rates.

Technical Implementation

The client health score dashboard was built using Tableau, a powerful data visualization and business intelligence platform. The technical implementation involved the following steps:

1. Data Extraction and Transformation: Data was extracted from Salesforce using the Salesforce API, Schwab OpenView Gateway using their API, and internal financial planning software using custom SQL queries. The extracted data was then transformed and cleaned using Python scripts and the Pandas library. This involved standardizing data formats, handling missing values, and calculating derived metrics such as engagement frequency and plan adherence.

2. Data Warehousing: The transformed data was loaded into a cloud-based data warehouse (Amazon Redshift) to facilitate efficient querying and reporting. Redshift's columnar storage and parallel processing capabilities allowed for rapid analysis of large datasets.

3. Health Score Calculation: The client health score was calculated using custom formulas within Tableau. The formulas incorporated the weighted scoring system developed during the planning phase. For example, the formula for calculating the engagement score might look like this:

   EngagementScore = (0.4 * MeetingFrequencyScore) + (0.3 * PhoneCallFrequencyScore) + (0.2 * EmailFrequencyScore) + (0.1 * WebsiteLoginFrequencyScore)
   

   Each individual frequency score was normalized to a scale of 0 to 100 based on historical data and client segmentation.

4. Dashboard Design: The Tableau dashboard was designed to provide advisors with a clear and concise view of client health. The dashboard included the following key elements:

   • Overall Health Score: A prominent display of the client's overall health score, along with a visual indicator of their risk level (e.g., green for Low Risk, yellow for Medium Risk, red for High Risk).
   • KPI Breakdown: A detailed breakdown of the individual KPIs contributing to the health score, allowing advisors to quickly identify the areas where the client is struggling.
   • Historical Trends: Charts showing the client's health score and individual KPI trends over time, providing context and helping advisors identify potential warning signs.
   • Alerting System: Automated alerts triggered when a client's health score fell below the High Risk threshold, notifying the advisor to take immediate action.
   • Client Segmentation: Tools for segmenting clients based on various characteristics, such as AUM, demographics, and risk tolerance, allowing advisors to identify common trends and tailor their outreach efforts.

5. API Integration: To streamline the advisor workflow, the dashboard was integrated with Salesforce using the Tableau CRM Connector. This allowed advisors to access the health score directly within the client's Salesforce record, eliminating the need to switch between applications.

6. Security and Compliance: Strict security measures were implemented to protect sensitive client data. Data was encrypted both in transit and at rest, and access to the dashboard was controlled through role-based permissions. The system was designed to comply with all relevant regulations, including GDPR and CCPA.

Results & ROI

The implementation of the client health score dashboard yielded significant improvements in client retention and overall profitability for Montgomery Retirement Solutions.

• Reduced Client Attrition: The overall client attrition rate decreased from 12% in the year prior to implementation to 4% in the first year after implementation. This represents a significant reduction of 8 percentage points.
• Increased AUM Retention: The firm retained an additional $24 million in AUM as a direct result of the reduced attrition rate. This was calculated by multiplying the average client AUM ($1 million) by the number of clients retained (24 clients, previously mentioned in the Challenge section).
• Improved Advisor Productivity: By proactively identifying at-risk clients, advisors were able to focus their time and energy on nurturing existing relationships rather than constantly reacting to client departures. This resulted in an estimated 15% increase in advisor productivity.
• Reduced Acquisition Costs: The reduced attrition rate translated into significant savings in client acquisition costs. With an estimated cost of $5,000 to acquire a new client, the firm saved $120,000 in acquisition expenses in the first year.
• Enhanced Client Satisfaction: Client satisfaction scores improved by 10% following the implementation of the health score dashboard, reflecting the positive impact of proactive communication and personalized support. This improvement was measured through post-implementation client satisfaction surveys using the same scoring mechanisms from pre-implementation.

Specifically, Montgomery noted a significant improvement in their ability to retain clients during market downturns. In the past, market volatility often triggered a wave of client withdrawals. However, with the health score dashboard in place, advisors were able to proactively reach out to clients, address their concerns, and reinforce the long-term value of their investment strategy. This resulted in a 30% reduction in client withdrawals during the most recent market correction.

Key Takeaways

1. Proactive Retention is Key: Don't wait for clients to signal their intent to leave. Implement a proactive system to identify and address potential issues before they escalate.
2. Data Integration is Crucial: Siloed data limits your ability to understand client needs and predict attrition. Integrate data from all relevant sources into a centralized system.
3. Client Engagement Matters: Regularly engage with your clients and provide personalized support. A decline in engagement is often a leading indicator of dissatisfaction.
4. Life Events Drive Change: Be aware of significant life events that may impact your clients' financial needs and priorities. Proactively adjust their financial plans accordingly.
5. Continuous Improvement is Essential: Regularly monitor the effectiveness of your retention strategy and make adjustments as needed. The client health score dashboard should be continuously refined based on data analysis and feedback.

About Golden Door Asset

Golden Door Asset builds AI-powered intelligence tools for RIAs. Our platform helps advisors proactively identify opportunities, personalize client experiences, and improve overall practice efficiency. Visit our tools to see how we can help your practice.