While new clients are the lifeblood of an investment advisory business—specifically because they provide a source of fees; provide links to pools of potential assets and clients; and replace clients lost through attrition—advisors say bringing on new clients is their biggest challenge.
“There’s no better way of acquiring clients than through referrals,” explains Nick Stonnington, president and founder of The Stonnington Group in Los Angeles. He typically seeks clients by strengthening relationships with existing clients and with what he calls “centers of influence,” such as accountants, lawyers and trustees who are often asked by their clients for financial advice.
Though client acquisition is crucial, it’s also an area in which advisors feel they need to improve most (see Chart 1).
In the latest Rydex|SGI AdvisorBenchmarking survey, advisors report that they face several challenges in their business, like coping with excessive government regulation, and investing in technology, their largest challenge is getting new clients (see Chart 2). Client acquisition even trumps the need to meet the demands of compliance and deal with the impact of a bear market.
Obtaining the Right Kind of Client for Your Practice
One critical aspect of acquiring new clients is determining their compatibility with the advisor’s business model. Stonnington says that, as an independent advisor, he encounters some prospects who feel it’s important to be associated with a large national brand. Other prospects, he believes, don’t understand that an independent wealth management advisor holds client interests at heart and has fewer conflicts of interests than a larger firm.
Also, an independent advisor provides a greater opportunity to clients than does the sometimes limited shelf space of a large broker-dealer. So Stonnington focuses on prospects who appreciate these benefits, including sophisticated ultra-high-net-worth individuals and sponsors of corporate retirement plans.
The asset level of potential clients, while important, may not be the overriding factor in deciding to pursue them. A client persuaded to transfer assets over time based on product offering, the strength of the advice and service level may turn out to be more loyal than one who turns over everything at once, but could bolt for no reason. Clients also may be more prized for their potential for referrals than the money they have.
Many advisors find that acquiring clients could easily absorb every minute of the day. But keeping the following points in mind may make the time spent obtaining clients more productive.
Keys to Effective Client Referrals
- Improve your system of obtaining referrals. Start by being sure your current clients are aware of the service you provide, and how your services may differ from the competition. When soliciting referrals, let your current clients know what kind of clients you’re looking to bring on board. For example, if you have expertise in working with retirees or executives with stock options, ask them if they have any contacts or referrals that meet this criteria. This will focus their thinking on providing you with potential clients that might be a good fit. Finally, develop a useful system for tracking your contact with prospects and gaining insight into the referral techniques and discussions that work. And while it may be obvious, make sure that you thank them for their help. A referral gift is also a nice touch. One advisor we know gives a Tiffany wine glass for each referral with a note saying that he “looks forward to completing the set.”
- Change your communication style and frequency.If phone calls aren’t productive in getting clients to feel good enough about your service to share the experience with friends and associates, try creating a web site or newsletter to help clients feel more connected to your practice—and aware of the value you offer them. Another way to boost communication is by increasing time spent coaching clients through market events rather than analyzing them after they occur. Find out what worries your clients and compare that with your concerns about their financial welfare—then open a discussion. The goal is to keep your existing client list vibrant and engaged.
- Free yourself to work on client acquisition.One of advisors’ biggest challenges is working in–and on–the business at the same time. Advisors skilled in acquiring clients say they don’t hesitate to delegate certain practice duties to an outside provider if it enables them to focus on building the business. Form partnerships or bring in third-party relationships to handle aspects of the business demanding more time or expertise, including investment management, research or compliance and recordkeeping. Efficient time management is the best way to take advantage of growth opportunities.
- Spend more time with your best clients.The clients of independent advisors often pay advisory fees, so they are all worthwhile. Still, it’s easy for a handful of clients to eat up a disproportionate amount of resources, so be prepared to delegate some client needs to other staff if possible. Do what’s in the interest of your best clients, since retention is the corollary of acquisition—it’s better to keep than replace a good client. If 80% of an advisor’s income comes from 20% of clients, to use a rule of thumb, an advisor may have to bring in four or five new clients to get one that contributes meaningfully to the business’ bottom line.
Finding and keeping clients is challenging, but it doesn’t have to be burdensome. Seeking opportunities to explain your investment advisory approach and the satisfaction of your current clients may be the best way to distinguish your offering to the market, while strengthening the core of a successful practice.
By fine-tuning your client acquisition skills, you’ll be tapping a crucial source of fees, accessing pools of potential assets and clients and replacing clients lost through attrition, helping to position your practice for continual success.