Advisors' Sophistication Is Growing, In Investing Knowledge and Marketing Tactics

Markets are volatile, clients can be fickle and business growth is challenging. Advisors aren’t always clear what action to take, if any, on these more macro issues affecting the industry. Perhaps that’s why many choose instead to concentrate on something under their control—such as increasing financial knowledge or picking up skills that can be used to better operate or market their business.

The most recent Rydex|SGI AdvisorBenchmarking survey suggests that many advisors are taking this route, and in the process infusing themselves with a more sophisticated range of resources to offer clients, which in turn helps keep them calm and loyal during unstable market conditions. The survey, conducted earlier in 2011, confirms that many advisors understand the value of having a broader tool set and a deeper knowledge base, whether involving investments or practice management.

Take, for example, how advisors are increasing their investment knowledge. Almost 75% of advisors surveyed advocate alternative investments either for “many” or “a select few” clients, revealing an understanding that an allocation to alternative investments (“alts”) can benefit most portfolios, given alts’ tendency to behave differently from traditional stocks, bonds and cash. Increased advisor sophistication is also evident in the reasons advisors recommend alternative investments for many of their clients. Most use alts primarily in satellite positions and have risk-related goals, including seeking portfolio diversification, managing risk and lowering portfolio volatility. Moreover, advisors report that they are increasingly evaluating alternative strategies by using less conventional risk metrics such as maximum drawdown and semi-deviation, reflecting a view that there is often more to assessing risk in an investment than standard deviation and Sharpe ratio.


The story is similar with ETFs. Half of advisors report “expert” or “above average” knowledge of basic ETFs characteristics, and about the same percentage say that they plan to increase their use of ETFs. Advisors also demonstrate a sophisticated understanding of ETFs in

reporting that they use them for more than core positions—increasingly, ETFs are implemented for specific purposes, such as gaining alts exposure, establishing directional market positions or obtaining exposure to certain factors, asset classes or regions.

Advisors are also showing a more nuanced view in operating their business—such as spending more time on portfolio management and client meetings, outsourcing more functions formerly handled in-house and working with multiple custodians. RIA firms are increasingly relying on their custodians for services as diverse as technology, technology integration and practice management help.

This year’s AdvisorBenchmarking survey also indicates that advisors are intelligently managing how they market themselves, with record numbers saying they are pursuing advanced designations and half saying they have written marketing plans. They also emphasize that they are fighting the dissatisfaction uncertain markets create by increasing their use of in-person communication methods and putting the pursuit of clients and AUM ahead of back-office or technology issues.

These findings indicate that despite the challenges, advisors are trying to spend time both “in” the business and “on” the business. It takes talent and sophistication to stay in tune with the needs of your clients while enhancing your own knowledge and using management techniques like outsourcing to improve the efficiency of your offerings. Here are some ways that may

help you increase your practice’s appeal—and effectiveness—to both current and prospective clients.

  • Consider specializing. Ask yourself, as well as your staff, vendors, colleagues and top clients, what you do best. Perhaps it is managing portfolios, finding new clients, training staff and mentoring other advisors, or communicating with clients. Whatever your expertise, focus on the aspect of business you’re best at. Identify those on your team whose skills may exceed yours in other areas, or outsource functions that either aren’t a good fit with your skills or can’t be delivered cost-effectively.
  • Copy the best firms. Our research on top firms suggests they have a higher target rate for growth, take a more aggressive approach to identifying and managing threats to their business, and put a heavier emphasis on using existing clients as a referral source. Maybe you can mimic the behaviors they’re exhibiting to motivate you and move you forward in the battle for clients and AUM. Top firms create an aura of sophistication that cannot be acquired through investment performance or marketing events alone. Interestingly, top firms report that they are less concerned with managing client expectations, suggesting strength in client relationships and their ability to work with clients regardless of what the market throws at them.
  • Upgrade your credentials. Maybe it’s time to pick up other licenses, such as those for life insurance and annuities, or pursue a degree or designation in financial planning or investment management. Adding meaningful designations after your name—CFA, CAIA, CFP, CIMA, MBA, CPA—demonstrates sophistication in a unique and differentiated way. It’s a huge commitment that may not suit the needs of your business, but it can set you apart in a competitive environment where recognized expertise is highly regarded, and may even open up new source of clients and assets.

Cachet in the investment advisory business is not acquired but earned, through every professional insight you have, every time you size up what needs to be done and who can help you do it, whenever you synthesize information from your vast knowledge of facts and experience to make a decision on behalf of a client. Fortunately, it can also be enhanced, through focusing your time on the things you do best, continuing to develop your expertise and adopting behaviors that have helped other practices succeed.

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