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.