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Advisors Tackle Marketing Basics: Practice Edge for June 2010

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Flash back to college: Marketing 101 taught us the basics of business success via the 4Ps: product, price, place, and promotion. By offering the right products at the right prices to the right people using the right promotional vehicles, success was virtually guaranteed. Advisors can identify with this basic framework in examining their own business. In this issue of PracticeEdge, we’ll examine two of the four Ps-product and price.

The Price Is Right

Determining the right price point for services is often a key factor in the success of a business. Even if price is only one of many factors that clients consider when choosing or staying with an advisor, an advisor must ensure that their fees are appropriately priced for their target market.

In the market downturn of 2008, investment advisors responded by dramatically reducing their asset under management (AUM) fees nearly 20% from the average AUM fee of 1.11 in 2007. However, with the market growth in 2009, the industry’s financial parameters looked healthier and advisors were able to slightly increase the AUM fees from their historic lows–to 0.92% on median compared to 0.90% in 2008.

The average AUM fee increase was likely driven by medium- and large-size accounts. Advisor fees are based on account size, with fees decreasing as account size increases. Comparing how fees in 2009 stack up against fees in 2008, we see that the median AUM fee among advisors has decreased for all accounts except medium-size accounts ($250,000 to $999,000) and for large accounts ($1,000,000 to $2,999,999). Investment professionals kept fees flat in an effort to retain clients but charged higher fees for comprehensive services provided for larger clients.

Product: Know Your Strengths

Consider your product or service offering. In what areas do you excel? What types of services are more of a stretch? It’s important to lead with your strengths, so it’s worth taking some time to assess your strengths. Are you best at charitable giving services? Estate planning?

Advisors seem to be doing this same kind of self-introspection as they adjust their service offerings or even look at outsourcing certain functions. More advisors offered insurance planning in 2009–64% compared to 54% of RIAs in 2008, while fewer advisors offered retirement planning (77% vs. 83%). The reason for the decline in retirement planning may be that advisors do not consider themselves to be extremely knowledgeable in this area–34% of advisors surveyed named “knowledge of issues unique to retirees” as an area in which they need to improve. Also, beyond typical investment management services, more advisors indicated that they are providing charitable giving (60% vs. 42%), business advisory services (22% vs. 12%), and concierge services (14% vs. 6%). Nearly a fourth (22%) of advisors are offering investment management services to other advisors.

According to Cerulli Associates’ 2007 Cerulli Advisor Survey, 75% of advisors polled stated that an influx of products has made portfolio construction more complex and time consuming, making portfolio construction decreasingly productive–and even unrealistic–for the advisor to efficiently manage alone. Specializing in offering investment management to other advisors could provide a competitive advantage. On the other hand, advisors who outsource this function will be able to expand capacity and make the most of the efforts directed toward existing business growth.

To help improve bottom-line performance, many investment advisors are looking to improve productivity by outsourcing solutions that create capacity for their teams or meet specific business needs. The interest and increased usage in outsourcing suggests that advisory firms are looking to drive revenues in more scalable ways. The top functions outsourced are tax filing (41%), bookkeeping (16%), human resource functions (9%), and compliance (7%). Advisors were more willing to outsource functions in 2009, likely in an effort to enhance their own productivity and ensure that they are spending their valuable time in the best possible way. Advisors are least likely to outsource trading, portfolio management, and marketing.

Price and product are just two of the basic building blocks of a firm’s business strategy, yet they are essential to get right. By assessing price and product annually, you’ll be able to make sure your prices are in line with the marketplace and that your offerings stay in line with your firm’s core competencies. A few things to keep in mind when reviewing your own pricing and product menu:

  • ? It’s dangerous to compete on price alone and few advisors want to be the Wal*Mart of the investment advisory industry, but it is a good idea to have a sense of your firm’s fee competitiveness. Also make sure your clients have a good understanding of your service offering and the value you bring to bear–they need to understand how your firm is different than others and the unique value proposition you offer them.

? Ensure that you provide your clients with the right mix of services that meet their needs. In your product offering, ensure than you reflect your expertise to give your businesses a steady and consistent growth pattern.

? Keep an eye on whether outsourcing makes sense for your firm. Can you ask your team take on a little more for a short time to weather the current environment with the thought that you can outsource later? Or does it make sense to offload so you can spend time on the most important areas of your business?

Advisors who price their product appropriately for their target audience and focus on the services that they do the best will position themselves for success, both in the short-term market recovery and in the longer term.

Next month, we’ll examine place and promotion.

Maya Ivanova is a market research manager with Rydex|SGI AdvisorBenchmarking She can be reached at [email protected].

Rydex|SGI AdvisorBenchmarking is a research and analysis center focused on the registered investment advisor (RIA) marketplace. Preliminary study results quoted in this article are based on the 373 RIA firms that took the online survey in March-May 2010. The service is aimed at helping advisors grow and enhance their firms by comparing how their businesses fare against other advisors. Advisors also learn best practices of the most successful advisors in the business.

AdvisorBenchmarking is an affiliate of Rydex Investments. The analysis on Rydex|SGI is based on the number of completed surveys and reflects only information from those surveys. This information is intended to be general in nature, and these overviews are no substitute for professional, legal, or consulting advice. This information should not be construed as advice from Rydex Investments or any of its affiliates.


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