In this, the first of a three-part series on the challenges facing fee-only advisors, the authors address these advisors’ marketing challenges. The next two articles in future months will address how advisors can employ technology to increase their efficiency and competitiveness, and how they can use comprehensive business benchmarking to measure success and improve their practices.
While fee-only financial advisors represent one of the fastest-growing markets of the financial services industry, the challenges facing these advisors mirror those that are impacting the industry as a whole. Prolonged economic uncertainty, shaky investor confidence, global tensions, and lingering fallout from corporate misfeasance make this a difficult time for financial professionals to expand their business.
One challenge is particularly acute for fee-only advisors: tougher competition. While the fee-only advisor segment is expected to continue on its rapid growth track, at the same time the fee-only approach is attracting new converts from banks, brokerage houses, CPAs, and insurance agents.
Proactive sales and marketing are probably an advisor’s most effective weapons to ward off this threat. However, research conducted at Tiburon’s business benchmarking Web site for fee-only financial advisors (www.fabestpractices.com) and through thousands of telephone interviews with advisors shows these advisors are expending very little marketing effort–almost certainly a case of no necessity, no invention. The bull market of the 1990s was extremely profitable for the fee-only advisory business. Advisors did not need many new clients, and those they got came freely from a groundswell of referrals from satisfied clients.
If lack of necessity explains lack of marketing in the past, the situation for fee-only advisors is rapidly changing. Since asset growth withered in the bear market, disenchanted clients are now less inclined to make unsolicited referrals. Even more critical is the increasing competition. In the future, investors seeking a fee-only advisor will probably be selecting from among multiple referrals, as well as from advisors who have approached them directly. As advisors recognize a greater need for business development, marketing may soon emerge as one of the primary success factors in this channel.
Marketing Done Well
Although some fee-only advisors have responded to mounting competitive pressures by gradually exploring marketing options, others seem to be daunted by the perceived burden that marketing would place on their firm. This is a potentially serious Achilles’ heel in their long-range business planning. Marketing should be integrated into that plan alongside client service, technology, and even investment management. The time when advisors could discount marketing is over.
Most advisors already have a defined structure for their investment process and their operations or client service functions. Treating marketing in a similar fashion will better ensure that their practice can withstand increased competition or market-driven hurdles like the recent bear market. First, translate marketing ideas into a plan; then assign responsibilities for executing that plan, just as someone is responsible for handling quarterly client reports.
An overly ambitious effort may actually hinder long-range success, so the most effective plan is not necessarily the most substantial. Unlike firms where marketing is second nature, fee-only advisors should gradually cultivate their marketing philosophy. Like any small business, advisors are most likely to find success if they begin with a focused goal and a relatively short but well-defined list of action steps. The scope of the marketing efforts can be gradually expanded in keeping with the growth objectives of the firm.
The marketing function within a fee-only practice should have one goal–to create opportunities for the partners. Significant opportunities can be created with a small commitment of human resources and capital.
Maximizing Resources Of Your Firm
For many people, the word marketing conjures up images of glossy brochures, television advertising, and golf tournament sponsorships, complete with a very large price tag. Fortunately for small- and medium-size businesses, some of the most effective marketing is done on a moderate scale at a local level. The type of marketing that will have a measurable impact on profits is probably well within the resources and capabilities of most advisors.
Before undertaking any marketing program, advisors should take stock of their human resources. Depending on objectives, assigning responsibilities to current staff may be sufficient to initiate the program, or dedicated marketing talent may be hired. Regardless of spending plans, there are a number of options:
Use Existing Staff. A significant part of any marketing effort is administrative–tracking client referrals, coordinating mailings, or making hospitality arrangements–all of which can be handled by existing staff members, as long as they are detail-oriented and willing to accept the challenge.
Employ an Intern or Recent College Graduate. Available at substantially less cost than an experienced marketing professional, such people are often eager for experience and can adequately execute the groundwork of marketing efforts, although they likely will not have the ability to steer the overall program.
Rent Part-time or Freelance Marketers. For marketing programs that are self-contained, such as hosting a client appreciation event or customizing a technical research report for clients, a freelance marketer may be satisfactory.
Engage a Mid-level Marketer. A person with five to seven years of marketing experience can contribute to the strategic direction of the marketing effort, while also executing administrative tasks.
Hire a Senior Marketer. If resources are available, it may be beneficial to hire an experienced marketing professional to assume full responsibility for the program. This person should have both marketing and sales experience, enabling her to plan and execute a strategy and also confidently interact with clients.
Take the Outsourcing Route. A number of third-party marketing firms cater to small financial services practices. They can provide prototype newsletters, develop Web site templates, or create customized marketing materials. When using an outsourcing firm, advisors should review their previous work and obtain references from other advisors.
Don’t Make the Mistake Of Relying on Passive Referrals
The fee-only advisory business is referral-driven. According to Tiburon data, 54% of these advisors’ new clients come through referrals from existing clients. Further, about 43% of new clients come from passive referrals. On the surface, this seems an ideal model–clients are so pleased with their experiences, they do the marketing and sales work by voluntarily telling friends, colleagues, or family.
However, reliance on passive referrals is not without risk. Clients are less apt to make a referral when they are not earning big returns. By contrast, a proactive referral process should be the primary marketing initiative of every advisor based on three critical steps:
1) Identify a comfortable way to ask for the referral, whether it be a direct approach or a more subtle suggestive method.
2) Make it easy for clients to give a referral when they are ready to do so.
3) Integrate referral gathering into the firm’s regular routine.
Asking Current Clients for the Referral
Some advisors may be completely comfortable asking clients to introduce them to friends or family. If this approach seems too blunt, there are more subtle methods:
o Mention in a newsletter or client letter that the firm is currently in a position to accept new clients. This is even more effective if it can be linked to a new partner joining the firm or the addition of staff.
o Host an appreciation event or give a presentation on the current market environment and invite clients to bring a guest.
o If the firm publishes a regular market outlook or research reports, send any extra copies to clients and suggest they pass them along to their friends.
o Time referral requests well. After reviewing favorable portfolio results, consider saying, “We’ve had a good quarter. Would you know anyone who might be interested in the investment advice I’ve provided to you?”
Some advisors find a way to bring up referrals with every client contact; others may feel that is too frequent. The key is to set an expectation for a minimum number of referral contacts with each client during a given period of time, say, six months or a year. Advisors may ask for referrals at semiannual or annual client meetings; they may mention referrals in every client letter; or they may distribute four special mailings a year. It is important to have a process so that referral opportunities are regularly presented to clients.
Making Referrals Easy For Clients