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Make It Big by Getting It Right

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When speaking about the optimal size of a financial firm, many industry experts seem to prefer a “super-size” strategy–as if more is not only more, but better. So is it rational to assume that the more an advisory practice is growing, the stronger and more profitable the business? Not necessarily. Success isn’t always measured in size. Instead of “super-sizing,” an alternative approach that has worked for many advisors is “right-sizing.” We define right-sizing as building a profitable business based on your targeted client’s specific needs-regardless of AUM size.

If you’ve been in the financial advisory industry for years but still haven’t crossed the $100 million mark in assets under management, you are not alone. Even though there are many industry experts teaching advisors how to get bigger, some advisors who stay small are as successful as larger firms. This month we take a look at the top practices among “small” firms (those with less than $100 million in AUM) to see what makes them successful. We also provide ideas that will help you build a successful firm.

1. Focus on a niche market demographic. Understanding your niche market, identifying their unique needs and the channels for reaching them is essential for any practice, regardless of size. The top small firms excel at this-focusing on specific market demographics when selecting potential clients. In comparison, most of the average firms (65%) tend to concentrate solely on the wealth of their clients when targeting prospects. “The more specific a demographic you have and tailor your services to, the better. Those advisors who do, reap benefits,” says Richard Coe of Coe Financial Services in Wichita, Kansas. “It’s important to separate yourself in a marketplace and provide services beyond money management,” says Coe “It’s very important to define the niche.” For instance, his clients are in or are near retirement.

Harry Kasanow of Kasanow & Associates Wealth Management in Honolulu, Hawaii practices niche marketing. Kasanow targets high-net-worth (HNW) doctors and lawyers. His practice is designed to be a “concierge” practice, similar to how the “Four Seasons (approaches) the hotel industry.” The firm is extremely efficient, generating 80% profit margins. Kasanow is selective when it comes to adding new clients, adding only four to six clients per year on average. He believes that his selective approach ensures that his clients “think of the firm as family.”


2. Rely more on consulting/retainer fees. Instead of turning away clients by having high minimum requirements, the top small firms make services available on a retainer basis by using consulting/planning fees in addition to asset under management (AUM) fees. According to Richard Coe, “Our biggest client started out as a small client. If we didn’t have consulting fees, he wouldn’t be our client.” By examining the sources of revenue for both top small firms and average small advisory practices, it’s easy to see the impact this different fee structure has. Top firms get 30% of their revenue from consulting/planning fees while the average small practice only gets 23%.


3. Have fewer clients per principal and spend more time with clients

Today’s top small firms appear to have the ability to attract their “ideal” clients and give them more personal attention. Having a lower ratio of clients to principal or a smaller client base ensures that each client is getting a high-touch experience, which leads to better client retention.

Many advisors feel that by having a small client base, they can more promptly respond to clients’ needs, which translates into greater client satisfaction, loyalty, and higher retention rates. According to our research, the top small firms have 115 clients per principal and spend 65% of their time with clients, compared to the average small advisor, who spends only 32% of their time with clients and has a higher ratio of clients per principal (181).


Be a Big Fish in a Small Pond

Top small firms have similar characteristics that contribute to their success. Notable among those, top small firms effectively define their market and focus on the most lucrative market segments, they have an appropriate pricing structure, and an optimal or manageable number of clients. If you’re one of the 38% of advisors with less than $100 million in assets, take heart. Success is not necessarily measured in AUM growth. You can be successful in your own right by staying true to yourself and your strengths. Some tips for smaller firms include:

- Define your market and how to reach it. Do a SWOT (Strengths, Weaknesses, Opportunities and Threats) analysis to understand your areas of expertise and how that might translate to potential niche markets. Look at your current clients to see if there are any similarities that might lead to a discovery of a target market that you may already be serving. For example, do they have common occupations, ages, lifestyles, or even similarly aged-children? You may have more than one target market, so look for secondary target markets as well during this exercise. Write a description of your ideal client. Once you know what your ideal client looks like, identify marketing strategies and tactics to reach them. Do they belong to certain groups? Do their kids go to certain common events?

- Consider adding consulting fees for those clients who don’t meet your minimum account requirements. Just because they’re not large now, doesn’t mean that they won’t grow to be larger clients. By using retainer fees, you’re covering the cost of your time and attention.

- Finally, look hard at your client base to determine if you have the right number of clients and if you provide them with enough face-to-face time. You may have to reprioritize your obligations, but our research shows that it’s highly profitable to do so.

Maya Ivanova is a research analyst with Rydex, an affiliate of Rydex Investments. She can be reached at [email protected].

If you would like to receive any of the following research reports via e-mail, please contact [email protected].

The Advisor Confidence Index monthly release;

AdvisorBenchmarking’s Comprehensive Analysis of the RIA Marketplace Study;

AdvisorBenchmarking Media Exposure Series.

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AdvisorBenchmarking, 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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