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Practice Management > Building Your Business

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A solid client base is the bedrock supporting any successful financial firm or advisor. While a firm’s ability to create wealth is fundamental to its survival; without clients to service, all the experience and abilities a firm brings with it would be for naught. Most firms realize this of course, which is why they devote so much energy to finding and bringing in new clients. Within the vast majority of advisory practices today, it’s new client acquisition that seems to get the most attention, the higher priority and the lion’s share of almost any marketing budget.

Too often, however, advisors forget that they have to avoid losing existing clients as well.

We’ve all heard, “It costs more to acquire a new client than retain an existing one.” Yet just 34% of the advisors surveyed by Rydex AdvisorBenchmarking feel that client retention is an important measurement for evaluating the performance of their business. However, a carefully considered retention strategy generates profits through keeping the revenue stream that would have otherwise been lost to another advisor. In our research, we examined the ratio of clients lost and clients acquired among the best performing practices and compared the results against the benchmark generated by the survey. Interestingly enough, we found that the best practices have low client acquisition, but they tend to keep a much higher percentage of existing clients on an annual basis. Conversely, the average firm lost 15% of their existing clientele in 2005, compared to only 3% by top firms (see Chart 1). And while acquisition efforts added 18% more clients to the average firm’s client base, overall client growth turned out to be only 3%. On the other hand, even though the overall client growth rate for the best practices was only 1%, AUM growth rate for these top firms is higher at 25% versus 21% for the average advisory firm, as the top firms seem do a better job of growing current client assets.

Does client acquisition equate to growth in profitability?

Retaining clients can be much less expensive than acquiring new ones, yet acquisition marketing programs still tend to draw a greater share of the budget. However, new client growth doesn’t necessarily guarantee a jump in profitability. While revenues from existing clients for an average practice were $2,525, the best performing firms enjoyed figures that were almost four times higher with $9,255 in revenues per client.

By focusing on client acquisition, average firms are constantly replacing clients, which may be a drag on productivity and could restrict a firm’s ability to really “know” their clients well. The good news is that there are actions you can take now to strengthen your client retention strategy, such as:

- Measure your retention rate. Has it changed over time? How does it compare with your peers? If you have an average or poor retention rate, you need to make client retention a priority for your business.

- Consider a client survey to identify areas where your clients are pleased with your firm’s performance, and more importantly, areas where there is room for improvement.

- Consider creating a client advisory board to solicit their feedback about your business. Clients will be flattered to be invited to participate on your advisory board and you may be surprised at their honesty in providing you with feedback. Be sure to determine your goals and expectations for them in advance–such as amount of time required, potential benefits of participating, format of meetings.

- Meet with your clients more often. Our research shows that advisors who spend 60% or more of their time with clients are eight times more profitable. (See PracticeEdge, October 2005.)

- Don’t take your clients for granted. Very often advisors have a trusted connection with their clients at the beginning of their relationship, but let it slip later on and eventually lose the clients.

- Understand your clients’ knowledge of current events and how various market conditions might affect their portfolio performance. Our research indicates distinct disconnects between what advisors and their clients expect from the market, as well as how they think different economic events can impact a portfolio. Misalignment of expectations can easily cost you a client. (See PracticeEdge, February 2006.)

The top firms may have a lesson for the rest of us-even though their client growth rate may not be higher, they have stronger retention and higher profits. Advisors need to capitalize on their existing customer relationships, make them more comprehensive in scope, deliver satisfactory results and eventually, accrue financial benefits for both the advisor and client.

face=”Arial,Helvetica,Geneva,Swiss,SunSans-Regular”>All registered

investment advisors are invited to participate in the latest Rydex

AdvisorBenchmarking survey of RIAs. Advisors who participate will

receive a customized Practice Analysis report, learn best practices of

the most successful advisors, gain access to trend analysis, and will

get a complimentary copy of the 2005 Annual Survey. To participate,

visit <a




src=”/images/ablogo.gif” width=”400″

height=”83″ border=”0″>

face=”Arial,Helvetica,Geneva,Swiss,SunSans-Regular”>Maya Ivanova is

a research analyst with Rydex, an affiliate of

Rydex Investments. She can be reached at <a

href=”mailto:[email protected]”>[email protected].

face=”Arial,Helvetica,Geneva,Swiss,SunSans-Regular”>If you would like

to receive any of the following research reports via e-mail, please

contact <a

href=”mailto:[email protected]”>[email protected].


size=”-2″ face=”Arial,Helvetica,Geneva,Swiss,SunSans-Regular”>The

Advisor Confidence Index monthly release;

AdvisorBenchmarking’s Comprehensive Analysis of the RIA Marketplace Study;

AdvisorBenchmarking Media Exposure


face=”Arial,Helvetica,Geneva,Swiss,SunSans-Regular”>To receive a customized benchmarking analysis of your practice, visit the free online tool


Inc., an affiliate of Rydex Investments, is a research and

analysis center focused on the RIA marketplace Through its web site,, the firm conducts multiple advisor

surveys every year covering a host of business management and

investment-management practices. The findings and analysis of the data

are then released to the marketplace in the form of annual studies,

quarterly research notes and monthly newsletters. The service is aimed

at helping advisors grow and enhance their firms by comparing how

their businesses fare against other advisors, as well as learning best

practices of the most successful advisors.


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