Optimizing the Frequency of Proactive Contact for Full-Service Investors

Full-service investment firms looking to maximize the ROI of proactive outreach to their clients should be aware that the ‘demand’ for proactive outreach varies considerably by demographic segment. In other words, developing proactive outreach programs should not be viewed with a ‘one-size-fits-at-all’ approach.

The graphic below, which is based on data from the 2014 J.D. Power Full-Service Investor Study, looks at investors that are ‘highly satisfied’ with the Account Offerings available at their firm. While highly satisfied ‘Affluent’ investors report an average of 9.9 contacts from their advisor, and 7.2 contacts from their firm, high satisfaction among investors in the ‘Mass Market’ and ‘Mass Affluent’ segments can be maintained with less frequent outreach.

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Understanding the differing levels of service that drive investor satisfaction may help firms create communication strategies that meet client needs, while also managing the costs associated with proactive outreach. It is also important to note that investors across different demographic segments have different preferences with regards to the channel used for communication, and the types of information that should be provided to them proactively.

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‘Corporate Leadership’ a Key Driver of Satisfaction and Retention Among Financial Advisors

Based on findings from the 2014 J.D. Power Financial Advisor Satisfaction Study, about 87% of Employee advisors and 93% of Independent advisors say they either “definitely will” or “probably will” remain at their current firm for the next 1 to 2 years.

‘Loyal advisors’ are more likely to cite ‘cultural values/benefits’ as a primary reason to remain with their firm, compared to ‘neutral advisors’. Specifically, study data finds that ‘Corporate Leadership’ has a key role to play in improving advisor loyalty through clear and effective communications of the firm’s core values and strategy.

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Additional analysis identifies some key differences in brand perception among ‘loyal’ and ‘neutral’ financial advisors – ‘loyal’ advisors are more likely to perceive their firm as ‘customer-focused’, ‘collaborative’ and ‘flexible’.

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Importance of Onboarding Self-Directed Investors

By definition, self-directed investors tend to have a less ‘personal’ relationship with their investment firm compared to other investors. Because of this, there is less opportunity for firms to personally engage clients and educate them on available products and services, thereby placing greater importance on the onboarding phase of the relationship. Firms that can successfully onboard new clients stand to benefit from improved satisfaction that may ultimately lead to increased loyalty and propensity to invest.

Educating new clients on the tools and resources available to them is a primary goal of the onboarding process. Data from the 2014 J.D. Power and Associates Self-Directed Investor Study finds that increasing awareness (and usage) of available tools can significantly increase investor satisfaction.

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Study findings also indicate that encouraging customers to use one set of tools drives increased awareness and usage of additional tools. For example, familiarizing self-directed investors on basic tools, such as investing basics or budgeting tools, drives greater usage of more advanced tools such as asset allocation or financial planning.

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Investing in the Correct Channels

With the continued acceptance of digital banking channels, it is important for financial institutions to ‘keep up with the times’. Even banks that promote personal service as a key part of their value proposition need to devote investment resources to their digital channels. Failure to do so may put the bank at risk of losing customers that represent future growth potential (ie. Millennials), who have already shown a preference for digital interaction.

Data from the 2014 Retail Banking Study provides an interesting case study on the impact of investing in digital channels. As shown in the graphic below, ‘Bank A’ has been investing heavily in digital channels while ‘Bank B’ has not. Bank A has seen a greater lift in customer satisfaction, driven by their technology improvements. It is also important to note that, despite a heavy investment in digital interaction, Bank A has also been able to significantly improve the branch experience.

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The chart below provides further evidence of the impact of investing in digital channels, as interaction scores for Bank A are significantly higher than those at Bank B. Additionally, the negative ‘gap’ in digital satisfaction between Bank B and the industry average has widened considerably.

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Finally, the real impact of investing in digital channels is shown below, as Bank A has seen their key loyalty and advocacy metrics improve, while Bank B has seen declines.

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The Negative Impact of Mergers and Acquisitions

Past analysis conducted by J.D. Power has found that mergers and acquisitions, if not managed properly, often result in significant declines in both customer satisfaction scores and Brand Image ratings. From the very beginning, customers of the acquired bank are likely to have negative perceptions of the brand to which they’re forced to switch, which amplifies any tactical problems that arise from the adoption of new banking policies, processes, and products.

Prior analysis has also found that retail banking customers typically react negatively to change, particularly when it disrupts their previous pricing structures or general routines. While fee changes are a major source of frustration among customers during a merger/acquisition, simple developments such as changes to online banking, account statements, and product services/features are also causes of frustration. Acquired customers experience more problems than current customers as they struggle to familiarize themselves with the processes and culture of a new financial institution.

Data from the 2013 Retail Banking Satisfaction provides a good case study to examine the potentially disruptive impact of M&A activity. BMO Harris had purchased M&I in 2010, and the conversion process lasted until late 2012. In turn, the 2013 Retail Banking Study found that BMO Harris experienced the largest declines across the industry for both overall satisfaction and the Brand Image rating for Good reputation.

Further, the impact of the merger on both Brand Image ratings and satisfaction scores was more pronounced in certain segments of BMO Harris Bank’s customer base, including geographic location. Given that M&I was headquartered in Milwaukee, it is not unexpected that customer frustration with the merger was significantly more negative in Wisconsin than in Illinois or within the Chicago CSA, which is the home market of BMO Harris. Additionally, decreases in both Brand Image ratings and satisfaction scores were larger among different demographic segments at BMO Harris.

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However, data from the first three fielding waves of the 2014 Retail Banking Study shows that BMO has done a solid job of addressing the initial problems and taking corrective action to improve the customer experience. Whereas their overall satisfaction score had decreased by 55 index points in the 2013 study, the first three waves of the 2014 study finds that BMO’s score has rebounded significantly (increase of  45 index points).

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Building Investor-Focused Relationships

Data from the J.D. Power U.S. Full Service Investor Satisfaction Study clearly shows that good market performance influences satisfaction.  However, it’s the development of strong relationships with investors that determines which firms thrive. Firms must ensure that advisor actions align with investor expectations and, thus, strengthen both loyalty and advocacy.

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Keys to building strong relationships include:

Ensure financial planning activities clearly define a strategy based on key needs and goals. As the relationship progresses, plans must adapt to changes in both the investor’s life circumstances and the broader financial environment.

Tailor the communications approach to the unique needs of the investor instead of using a “one-size-fits-all” approach. Investors want to believe their advisors understand them and their needs, which begins with interacting via their preferred method.

Build transparency into all interactions. Two key issues for all investors are whether they are making as much as they can and whether they are paying too much. Ensuring there is clarity in both areas will help to build trust.

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Using Rewards to Drive Increased Credit Card Spend

Early 2014 performance indicators are encouraging for credit card issuers, as customer satisfaction is on track to reach its highest level since the inception of the J.D. Power Credit Card Satisfaction StudySM in 2007. And while the Target data breach may have impacted consumer willingness to make electronic purchases, data finds that issuers can use ‘attractive’ rewards offerings to drive higher levels of personal credit card spend.

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As expected, customer perceptions of reward attractiveness vary based on their preferences, which are driven by customer demographics and psychographics. For example, comparing two airline co-branded credit cards may show significantly different demographic profiles. One of the cards may frequently attract customers that are younger, less affluent, and less educated, while the other tends to attract older customers that have multiple children living in their household.

Understanding these segmentation differences (i.e., life style, life stage, hobbies/interests, spending habits, etc.) can help issuers design more appealing reward programs. If an issuer determines that a specific airline credit card attracts customers who frequently travel internationally, the issuer could add rewards associated with foreign travel or potentially partner with a hotel chain to allow additional earning opportunities. Another example is a bank-branded card that attracts sports enthusiasts, in which case a credit card issuer could add access to sporting events as a redemption option or partner with leading online ticket retailers to allow customers to pay for tickets using rewards.

Lastly, educating customers on the details of rewards programs is critical in order to maximize the impact on spend. And while it is important to inform customers about all program terms (as indicated in the chart below), lack of awareness regarding the types of rewards available has the greatest individual impact.

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The Impact of Fee Changes in Retail Banking

Strapped with a wide range of financial burdens, it is tempting for financial institutions to consider pricing changes in an attempt to improve bottom-line performance. However, any changes must be weighed carefully, and the potential business threats must be clearly understood.

Data from JD Power’s Retail Banking Satisfaction Study finds that Overall satisfaction declines significantly when fee changes are implemented, and more importantly, intended attrition levels are three times higher among customers that experience a fee change, compared to those whose fees remain stable.

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Pricing changes can also be costly to banks if not handled effectively, through the allocation of resources required to handle customer complaints related to the change. Nearly one third (32%) of customers that experience a fee change contact their bank with a problem and, on average, problems require 1.9 customer contacts to be resolved. Therefore, for every 100,000 retail banking customers that experience a fee change, bank personnel will receive 60,800 contacts. In comparison, for every 100,000 retail banking customers that do not experience a fee change, bank personnel will receive 19,000 contacts.

Estimating that bank representatives can handle 6.5 customer contacts per hour, and that their labor cost is $40 per hour, fee structure changes may result in an incremental labor cost of $257,231 for banks to absorb.

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Although data suggests that fee changes have a lagging effect on customer satisfaction (the full impact isn’t recognized until months after the change was made), intended attrition is impacted immediately, as customers tend to ‘overreact’ to a new charge. Therefore, it is particularly critical for financial institutions to minimize the initial bitterness experienced by customers, as this time period represents the greatest risk of attrition.

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Lastly, failing to ensure that all customers are fully aware of a fee change in advance can significantly impact customer satisfaction, loyalty and problem metrics. In order to successfully mitigate this problem, banks need to focus on over-communicating the change to ensure the message is fully received by their customer base

Financial institutions should begin the process of communicating fee changes immediately after the decision has been made. The appropriate messaging and delivery methods must be identified, and investing in quantitative or qualitative market research to aid in decisions should be considered. Lastly, the timeframe of the change must kept top-of-mind. Initial communications should begin months before implementation, and because the risk of customer attrition is highest within the first month after a pricing change, banks should place heavy focus on preparing all types of employees on how to handle any immediate backlash from customers.

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Maximizing the ROI of Credit Card Communications

Credit card issuers need to ensure that proactive outreach campaigns directed at current customers fit the evolving ‘digital world’. Failure to do so may not yield a positive return on the resource expenditures associated with customer communications.

Data from the 2013 Credit Card Satisfaction Study finds that nearly half (46%) of credit card customers did not read/use the most recent proactive communication they received from their issuer, thereby pointing to a potential ‘waste’ of resources spent by card issuers.

However, study findings show that the method used to deliver communications may have a positive impact on whether customers choose to read/use the information. For example, customers are most likely to read/use information provided electronically (emails and text messages), and are least likely to read/use information delivered by standard mail.

Issuers should consider revisions to their communication strategies, focusing on digital delivery of messages. This may also require issuers to rethink the content of their messaging and focus on delivering information in a more concise manner.

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Financial Impact of Reducing Problems among Credit Card Customers

Problem prevention should be a focus area for all credit card issuers. Analysis of data from the 2013 Credit Card Satisfaction Study finds that when customers experience a problem, overall satisfaction and customer retention metrics decline significantly.

Preventing the occurrence of problems may also help reduce operational costs. For every 1-percentage-point reduction in problem incidence, issuers may be able to save nearly $230,000 for every 1 million cardholders.

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Issuers should consider the implementation of a problem tracking or problem management systems. Problem tracking provides continual analysis of problem-related customer contacts, potentially helping issuers identify and prioritize processes that can minimize the occurrence of problems. Problem management may include multiple inputs, such as problem contact data, survey data and employee feedback, and is designed to guide issuers on the development of systems to both prevent problems from occurring, and to maximize the effectiveness of resolving problems that do occur.

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