Brick by Brick

Most registered investment advisors find new clients the old-fashioned way: referrals from satisfied customers. Word-of-mouth referrals have always worked well in this business, since would-be clients commonly ask friends, family, or colleagues for advice, and will likely act on a glowing recommendation. It’s a tried-and-true approach and yes, still effective. However, from a marketing perspective, it’s a passive way to develop your business.

In recent years, industry leaders have begun implementing active marketing strategies to complement the traditional word-of-mouth model. The active model is becoming vital, and RIA firms that can develop targeted and efficient marketing programs will enjoy an enormous competitive advantage in the years to come.

Consider the big picture: U.S. investable household assets have tripled in the last 25 years to $23 trillion, and the retirement needs of baby boomers will drive the continued growth of professionally managed assets. The lion’s share of those assets are going to RIAs, who have historically outpaced all other channels in asset growth. As an industry, we’ve enjoyed a 24% compound annual growth rate (CAGR) in assets under management, with a 20% CAGR projected over the next five years, according to the 2007 Moss Adams Fast Forward: The Advisor of the Future report conducted for Pershing Advisor Solutions. With that kind of growth, you might be thinking, “Why go to all the trouble of developing a complicated marketing plan? Why not just sit back and wait for the referrals to roll in?”

The answer is that we all need to develop new strategies to stay competitive. While the entire industry has enjoyed healthy growth, the top 10% of RIA firms–the growth leaders–regularly surpass the industry average, and they do it in part through active marketing, the same Moss Adams report found. These are firms that acquire clients through the strategic and tactical use of marketing: identifying their strengths, knowing their target audience, creating a message that speaks to that audience, and devising a multi-channel approach for delivering their message. Among these firms are many that have joined the Focus Financial Network; we will base many of our suggestions below on the real-world experiences of these firms.

Don’t Get Left Behind

The competition in the wealth management industry is increasing as RIAs, most of them independent, have grown more than 47% in the last two years, according to a 2007 Cerulli report on RIAs, Evaluating Opportunities in a Maturing Marketplace. The firms that rely on the old passive word-of-mouth model of business development risk getting left behind. The winners of this competition will be advisory firms that find new and creative ways to identify, attract and serve profitable clients.

To be an industry leader–or to simply remain competitive in an increasingly crowded marketplace–now is the time to develop a marketing plan. Marketing plans don’t have to be elaborate, time-consuming, or expensive. It’s not rocket science either. It’s simply effective and sustainable techniques that have been time tested in other industries with similar client segments and can be balanced with the many demands of running your firm. Besides, investing in a down market means you’ll be positioned to reap the benefits of an upswing.

Know Your Strengths

The first step is to assess your strengths and your failings: What do you do well? What are your weaknesses? The foundation for growth rests on excellent client service, high customer satisfaction, and strong client retention. Knowing the strengths and addressing the weaknesses of your company solidifies a foundation for a successful active marketing plan.

The best way to measure your performance is to conduct a client satisfaction survey which can be outsourced to a professional firm at a fairly low cost. You just need to make sure you have an updated client e-mail list so the survey can be conducted electronically. Encourage clients to complete the survey over a two-to-four-week period. The survey would include questions such as:

• Why did you join the firm?
• How satisfied are you with the firm?
• Are you more likely to maintain, increase, or decrease the assets you have with the firm over the next 12 months?
• How satisfied are you with the level of service provided by your advisor?
• How satisfied are you with the performance of your financial plan? Do you believe that plan will allow you to meet your long-term goals?
• Would you recommend our company to a friend or colleague?

These questions will help to measure your core strengths and overall effectiveness. Ask clients to provide names at the end of the survey so you can follow up with them if they are dissatisfied in any way and to ask them for referrals. Make it optional so they remain comfortable with providing honest feedback. The survey information provides you with a real-world-based “unique value proposition,” i.e., the reason prospective clients should choose you over another financial advisor.

Perhaps the most important question for you right now is the final one in the list above: “How likely is it that you would recommend our company to a friend or colleague?” This is the question that will help identify a prioritized list of clients (“net promoters”) most likely to refer someone in the near term. These are the people who will be of greatest value to you as you move through the steps of developing a new active marketing plan.

Set Specific Goals

Now ask yourself what you’re trying to achieve. Your answers should go beyond generalities and include specific growth objectives tailored to your strategic and financial business goals.

The advisory firm of HoyleCohen in San Diego set a goal of becoming the city’s premier wealth management firm with $1 billion in assets under management within five years. If you’re a firm that targets high-net-worth clients and your advisors typically bring in two or three new clients each year, set a target for your advisors to bring in four or five new clients, then stick to a minimum asset threshold to ensure they’re the kind of clients you want.

Goals can inspire tremendous excitement and motivation within an organization. Dream big, but be realistic about your targets. A goal of $1 billion in AUM is a great motivator, but it must also be attainable. It’s important to involve the entire organization in determining your goals, and to regularly remind staffers of the goal while rewarding them for incremental progress toward achieving those targets.

Know Your Audience

Your goals will help determine who you want to attract. A profitability analysis of your current client base will help identify the most profitable target segment for your practice. Your ideal clients aren’t necessarily the ones with the most assets (though assets never hurt). Rather, your best clients are those who can benefit most from your special skills or approach; these clients are also usually the most profitable. Your active marketing plan will help those prospective clients understand what your business can do for them.

Define your target segment using demographic and psychographic descriptions: keep it simple because you have to be able to explain this segment to your clients so they can, in turn, think of ideal referrals.

Determine the areas where your core skill set is differentiated from the competition and where there are suitable market opportunities to grow. If you’re missing key products or need to reconfigure your service experience, tackle these areas first. You may also have existing clients who don’t fit your new target audience, such as lower-profit clients who take up a disproportionate amount of your time (see following article). You may need to deploy new models of servicing those clients. One way to handle this is to adopt a team approach to handling clients with the goal of creating capacity within your firm to best attract and service your “ideal” customers. If you’ve pinned your growth on the top-tier clients, you need to deliver on your promises to them.