With the global banking system in crisis, wealth managers are now facing even more scrutiny from angry clients insisting on answers about who’s responsible for plunging portfolio performance and flawed risk management.

With the global banking system in crisis, wealth managers are now facing even more scrutiny from angry clients insisting on answers about who’s responsible for plunging portfolio performance and flawed risk management.

In fact, serving demanding clients has become one of the top three challenges wealth managers now face, according to the 2008 NorthStar Wealth Management Trends Survey. Yet poor portfolio performance may be only the tip of the iceberg. Recent reports suggest the widespread lack of confidence in wealth advisors will create massive client losses for both advisors and the firms they represent.

Consultant Russ Alan Prince, author of The Middle-Class Millionaire, completed a survey in February on this very topic, pointing out that about two-thirds of wealthy investors are "likely to ditch their current advisor". The most common reason a client fires an advisor is not poor investment performance but rather a lack of proactive advice. In fact, 87 per cent of clients leave because of poor service and only 13 per cent because of investment return, said Mr Prince.

Given this unprecedented loss of trust among wealthy investors, what can wealth advisors do to improve and retain relationships with clients?

Throughout history, the financial market has had many ups and downs. Obviously, wealth advisors cannot control the market but they can take more proactive control over the dialogue about market volatility. More proactive communication and adopting a client-centric service model are two key elements for maintaining a satisfied clientele, especially when times are tough.

Even three years ago, Mr Prince and his colleague Hannah Shaw Grove wrote in the publication Financial Advisor about the steps one can take to preserve relationships in a down market. They asked financial advisors what they did during the last downturn and whether or not it helped. According to the article, "the answer, in a nutshell, is that they communicated with their clients − in advance, often, and in an informed manner".

Mr Prince and Ms Grove added that "the frequency and quality of communication made a difference as they not only retained their key clients but also added some of the clients and assets that less proactive advisors were losing".

A client-centric service model that concentrates on holistic planning and emphasises offering more personalised and proactive advice creates a more consultative relationship that maintains a higher level of client satisfaction – even when portfolio performance suffers.

Respect and loyalty are preserved as long as clients see clear proof of the added value their advisors provide in the realm of tax strategies, estate planning, philanthropy, trust services, and all the other hallmarks of the complete wealth management relationship.

If firms employ an infrastructure that supports this holistic approach through improved processes and advanced technology, then wealth managers will be able to focus more time on client contact and less time on administrative tasks.

In the Prince and Grove article, Gary Rathbun, chief executive and president of Private Wealth Consultants, noted that "most clients won’t blame their advisor for volatility, especially if there’s an ongoing dialogue". And Richard Harris, managing member of BPN Montaigne, said that while advisors who communicate poorly in down markets suffer, "Those advisors who sold service and relationships, in contrast, thrived during the bear market and often added clients and assets.”

If wealth managers pay close attention to client concerns and respond accordingly, they can create a friendlier relationship that is more than just about portfolio performance and stresses a strong partnership between client and advisor.

In a more recent Financial Advisor article, Prince and Grove suggest that the current market climate creates new growth opportunities.

"It’s true that a gyrating stock market, skyrocketing gas prices, higher unemployment rates, a tumbling DJIA, an eroding dollar and record numbers of foreclosures used to be sure signs of trouble," they point out, "but today they have created an ideal environment for you to reach out to your clients and prospects as an expert and a leader," their article said.