The Top Five Practices of the Top Firms: Practice Edge for September 2010

Apple is one of the most closely followed companies in the nation for several reasons. In addition to designing and introducing products that define a market, Apple utilizes many techniques to increase its chances of success: partnering with other firms and exploring new lines of business, for example. Likewise, most advisors use different tactics and techniques to build their success and enhance their practices. Some are partnering with other firms while others are exploring new lines of business and adding new services and new staff members to support them.

In analyzing the way advisors managed their practices during 2009, Rydex|SGI AdvisorBenchmarking uncovered a few common characteristics that distinguished top firms from their fellow investment professionals (see sidebar on "Defining Top Firms").

While there is no magic formula to making an advisory practice an industry best, we identified five common characteristics that winning firms have in common:

  1. l proactive and effective communication
  2. l referrals
  3. l alternative investments usage
  4. l technology optimization and expense discipline
  5. l outsourcing

In this article, we will focus on proactive and effective communication and referrals. Next month, we'll discuss alternative investments usage; technology optimization and expense discipline; and outsourcing.

Top Practice No. 1: Proactive and Effective Communication

When it comes to communicating with clients, top advisory firms operate proactively, not reactively. They outpace their average counterparts in usage of every communication method, including e-mail, newsletters, client reviews and special occasion communication. They also spend more time in front of clients. That time and effort pays off. Those firms that spent more than 60% of their time in front of clients were eight times more profitable compared to those firms who spent 30% or less communicating to clients.

How to Duplicate Top Firms' Success: Communication

To achieve proactive and effective communication, advisors can take these pages from top advisors' playbooks:

  1. l Not all clients have the same communication preferences. While younger clients may prefer e-communication, older clients may prefer more traditional phone and in-person contact. But don't make assumptions--ask them.
  2. l In addition to remaining sensitive to your clients' ways to communicate, stay on top of these preferences so you'll know if they change.
  3. l Devote more time to your clients. No matter the news, it's essential that advisory firms be proactive about their communication with clients. Consider that more high-touch communication (face-to-face and phone calls, for instance) are more effective during times of stress. Lessen the reliance on e-mail unless it's preferred by clients. Set aside time each day to connect with clients.
  4. l Don't underestimate technology--an effective CRM system is an important tool in your client relationship.

Top Practice No. 2: Referrals

Market performance was not the only factor responsible for growth in advisor assets in 2009. New clients also resulted in increased assets. There has been a significant shift in how advisors gained new clients--overall, all firms were much more proactive in seeking active referrals from clients, with the average firm doubling the percentage of clients gained from actively seeking referrals to 21% in 2009 from just 12% in 2008.

Top firms were even more aggressive in seeking new clients--42% of their clients originated from active referrals. In contrast, the percentage of new clients coming from passive referrals--the most common source of new clients in the past--was 10% for average firms compared to 18% for top firms.

The ability for top firms to fortify their client base through aggressive and proactive referrals played a major role in their growth and underscores the importance to all firms of seeking clients through active referrals.

How to Duplicate Top Firms' Success: Referrals

To better utilize active referrals as a means of growth, advisors can follow these best practices of top firms:

  1. l Don't take a passive approach in cultivating referrals--make asking for referrals part of your routine communication with clients. It's especially important with those clients who fit your "ideal client" profile since they can refer you to prospects with similar characteristics.

    l Implement a referral program. Have a simple but systematical way to ask for referrals. According to a 2007 Schwab study, 90% of the clients of independent RIAs would recommend their advisor to a friend or family member. Make sure to tap this potential for growth.

    l While developing your referral network, consider not just existing clients but also your friends and other financial professionals such as accountants and attorneys.

Next month: Top firms and alternative investments usage; technology optimization and expense discipline; and outsourcing.


Maya Ivanova is a market research manager with Rydex AdvisorBenchmarking.com. She can be reached at mivanova@advisorbenchmarking.com.

Rydex|SGI AdvisorBenchmarking is a research and analysis center focused on the registered investment advisor (RIA) marketplace. Study results quoted in this article are based on the 427 RIA firms that took the online survey in March-May 2010. The service is aimed at helping advisors grow and enhance their firms by comparing how their businesses fare against other advisors. Advisors also learn best practices of the most successful advisors in the business.

AdvisorBenchmarking is an affiliate of Rydex|SGI. The analysis on Rydex|SGI AdvisorBenchmarking.com is based on the number of completed surveys and reflects only information from those surveys. This information is intended to be general in nature, and these overviews are no substitute for professional, legal or consulting advice. This information should not be construed as advice from Rydex|SGI or any of its affiliates.

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