When we ask owner-advisors why their firms aren't growing (or aren't growing faster), they invariably tell us, “We’re not getting out there enough. We need to network better and get more prospective clients in the door.” As it turns out, in the vast majority of cases we see, they are half right—and unfortunately, they usually focus on the wrong half.
In our experience, most advisory firms don't generate nearly as many prospective clients as they could. But in most cases, even if they did, it wouldn't help much because their rate of turning prospective clients into active clients is way low. If they simply signed up half their prospective clients, they’d have all the new clients they need.
As far as we can tell, the problem of low client closing ratios has reached epidemic proportions in the independent advisory world. We believe that's because the business of advice has undergone a dramatic evolution over the past five years, and most firms haven't adapted to the new reality. This shift might best be described as “the death of the rainmaker.” Here's why and what today's firm owners need to do about it.
This situation is most visible to us in our succession planning work. In most successions we’ve worked on, the main concern of the owner-advisor is that there is no rainmaker among his or her successors, and they are adamant that “you younger guys need to make yourself or hire a rainmaker to make the firm work.” Yet the reality is that if you believe rainmaking is the future of your firm, it will fail. The hardest part of our succession planning work is convincing the rainmaker-owner that there is a better way to go.
We’ve written before that as advisory firms grow, they go through an evolution. In the beginning, the key to success is to get new clients in the door, period. That's why most advisors who have started firms are rainmakers—they had to be. But as firms grow and client referrals become an increasingly larger source of new clients, the importance of “rainmaking” decreases, and the importance of great client service increases (to keep existing clients happy enough to refer their friends). At some point, usually around $500,000 or so in annual revenues, client service becomes more important than rainmaking—which then continues to shrink in importance as the firm continues to grow.
The entire independent advisory business has gone through a similar transformation. Twenty years ago, most independent firms were relatively new. They were run by their founding advisors, and they had less than $250,000 in revenues. Their growth depended on rainmaking. Today's advisory firms are much larger, older, have more clients and are either run by successor advisors or are in the process of being turned over to successors.
The future growth of many of today's advisory firms depends mostly on referrals from their large—and growing—client bases and on the quality of their services to keep those clients happy. For these firms, rainmaking is no longer an efficient way to grow: It's too slow, too expensive and too limited. Four hundred client-rainmakers will have way more contacts than one senior advisor—no matter how outgoing he or she is.
That means the key issue for today's advisory firms and the successor advisors who will run them is maintaining a high standard of client service and increasing the closing ratio for the referrals generated by existing clients. While it's true that we now have a new generation of advisors who are good advisors but not rainmakers (if they were, they’d be starting their own firms), the good news is that the evolution of the industry and of the firm doesn't require them to be.
Although many older advisors believe the way to grow an advisory firm is to keep making rain the way they did it back in the day, we’ve found that's just not true anymore. Successful advisory firms today need a solid marketing process to maximize referrals from their existing clients, and to transition a large majority of those referrals into new clients. Since more often than not succession is financed out of firm growth, effective marketing is the key to succession as well.
This is so true that “rainmaker” isn't even a position that we recruit and hire for anymore. In fact, in all of the larger—$2 billion to $3 billion in AUM—firms we work with, the marketing and sales function is split off from the advisory function: It's considered an essential specialty of its own. In smaller firms, it's important to get the whole firm involved in marketing, starting with the owners who need to change their perspective from rainmaking to firm-wide new client acquisition. Then, we create a dynamic marketing process that will be different for every firm, but will include these four elements:
1. Killer client relationships. While having your clients like you is never a bad thing, it's even better to wow them with what you do for them. As I mentioned, to increase referrals, firms need to create client services that their clients rave about. The first step is changing a firm's (and owner's) focus from bringing in new clients to delivering killer client service. I’m not talking about lip service here. The “client service people” need to be viewed as the “heart of the house,” the key to the success of the firm. They will have the most interaction with the clients—and much of the clients’ impression of the firm will come from those interactions.
To create a consistent client experience, we work with advisory firms to create a client care process that details what each member of the firm should do and say at every point of client contact, from when prospects initially contact the firm to how they become clients.
2. Special or unique services. Different is memorable. So are things that make clients’ lives easier. In March, we wrote about inexpensive perks that wow clients. Another effective tool we use is a “client calendar.” It's a handout given to each client that details all the things the firm will do for them during the coming calendar year. These calendars include everything from scheduled client meetings and reports to all the behind-the-scenes activities: regular portfolio reviews and rebalancing, confirmation of trades, financial plan reviews, risk assessments, insurance reviews, interactions with the client's accountant or attorney, regular newsletters and other client communications, etc. We’ve found that these client calendars are so popular and so successful that they create a sense that “my advisor has it all under control” and client calls fall to a bare minimum (especially the “I don't know what you’re doing for me, what's going on?” calls). In some cases, many clients stop feeling a need for regular face-to-face meetings altogether.
3. A consistent community presence. Close rates on referrals increase dramatically when prospective clients have heard about your firm. In the old days, the best tools were seminars, speeches, columns in local newspapers or magazine, TV or radio appearances and newsletters. Today, social media makes maintaining a presence much easier: blogs, tweets, discussion boards, email blasts, Facebook, etc. Some people in the firm need to assume the roles of the spokespeople (electronic delivery means even introverts can do it). The best success comes from integrating these marketing efforts with a firm's culture, service models and target clients. With a good marketing plan, new clients will find you. And when a firm gets large enough, hiring a professional marketing firm will take them to the next level.
4. Advisors who can close. Marketing and client services get referrals and prospects. But even great marketing doesn't matter if you can't close. We’ve found the key to high closing success rates is a clear closing process. When a process becomes the focus, people stop trying to sell and just talk about their firm and what it does for its clients. They are more comfortable, and the clients feel it's all about them.
While there are all sorts of effective close processes, we use a three-step closing process. The first meeting with prospective clients is “discovery”: the advisor learns about them, the clients learn about the firm. The second meeting is about “possibilities”: what the clients need and how the firm can help them get it (what we can do for you), including the client calendar and the financial plan.
Often, clients sign up at this point. Sometimes the clients want to think about it and then call in to schedule a final meeting to sign up. The key to this process is that we train our advisors and client service people to focus on the process. They don't have to sell or do anything extra. They simply say, “This is how we do it.” If the client doesn't want to do it, we don't take them. This takes the pressure to sell off non-sales people and skyrockets closing ratios. We can even train customer service people to close successfully.
To make the transition from one-off rainmaking to successful marketing, today's owner-advisors need to ask themselves: “Have you taught any of your advisors to close?” Usually they haven't because rainmaking is an art, not a science. Today's advisory firms need the consistency of science: a good marketing plan that drives referrals and prospects to find them, and a closing process with a high success rate. In recognition of the industry's evolution, and the need for integrating marketing into every independent advisory firm's business strategy, we recently merged our business-consulting firm with a marketing firm. It's the new reality for doing business with advisors as well.
Related on ThinkAdvisor: