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Portfolio > ETFs > Broad Market

Define & Conquer—Marketing Strategically to Achieve Growth

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In 2010, research and consulting firm FA Insight released The 2010 FA Insight Study of Advisory Firms: Growth by Design, exploring two fundamental leading indicators of firm growth: operations and marketing. Following the market decline of 2008 and 2009, the study reported that advisory firms were ready to grow again in 2010 with increased expectations for staff hiring levels and stronger forecasts for growth in assets and revenue alike. Preliminary results from FA Insight’s 2011 survey indicate these expectations became reality, with assets, revenue, clients and staff all up markedly in 2010 relative to recent years.

The question for advisory firms now is, “Will the renewal of growth be sustained through the pursuit of a deliberate growth strategy or put at risk because of a more complacent strategy that mimics security market performance?”

In this article, the final from the Growth by Design series released with the support of media partner Investment Advisor, we share some of the most effective practices in stimulating demand through enhanced marketing capabilities. Our particular focus is on approaching firm marketing strategically: considering whom the firm is best-suited to serve and what the firm can offer this market that will be most valued.

For many advisory firm executives, strategic marketing is relatively unfamiliar territory. Only 49% of firms surveyed indicated that they have developed a marketing plan. Just 18% of those firms consider their marketing plan to be effective in generating new clients. Furthermore, as seen in Figure 1, client referrals accounted for 48% of new client acquisition, demonstrating that firms continue to favor a more traditional, and likely a more passive, approach to generating new relationships.

As revealed in the Growth by Design study, an exciting opportunity exists for firms to build marketing capabilities that support a more deliberate approach to client acquisition and provide a far more reliable growth engine than the current market cycle.

Keeping on Target
No firm, irrespective of size, has unlimited resources to invest in firm growth. Growing via a niche or target market strategy allows a firm to focus resources and develop a compelling offer that attracts and retains target clients by speaking to their distinctive needs. To grow strategically, however, requires that firms first define the characteristics of those clients whom they will actively pursue and serve.

Of all firms surveyed, 72% reported that they have established a target market. Upon closer examination the vast majority of these firms (70%) utilizes their level of assets to define their target market. A further 54% use client life stage (firms could select more than one factor). While life stage and level of assets may be a helpful starting point, they do little to assist a firm in successfully mining the market to find and attract new clients. Figure 2 illustrates the opportunity for more firms to further refine their target markets.

Characteristics included in target market criteria

Defining a target market can realize a host of benefits. Scarce resources stretch further when firms market and deliver to a more closely defined set of client needs. As needs narrow, the firm can more readily build expertise in the specific areas needed to support target clients. In general, the more refined the client mix, the more adept the firm becomes in catering to client needs.

FA Insight distinguishes Standout firms at each of our four stages of development (Operators: $75,000–$500,000 in annual revenue; Cultivators: $500,000–$1.5 million; Accelerators: $1.5 million–$3 million; Innovators: more than $3 million in revenue). Standout firms are defined according to two key criteria related to building firm value:

  • The ability to generate income for owners
  • The ability to grow (as measured by revenue)

It is not surprising that these high-growth and high-income firms consistently demonstrated a greater tendency to more clearly define, pursue and serve a target market. As demonstrated in a previous Growth by Design article, Standout firms at every stage show a greater tendency to focus on a target market.

A Granular Understanding of Clients Through Segmentation
Gaining a deep understanding of current clients through segmentation can be a helpful starting point for firms determining an appropriate target market. Segmentation analysis involves identifying trends across a firm’s base of clients in order to group clients with similar characteristics.

The resulting client groups or segments can help to prioritize whom the firm is best suited to serve. Conducting client segmentation can clarify the types of relationships that are the most profitable. In addition to improving marketing effectiveness, segmentation can reveal new opportunities with existing clients, such as supporting more customized marketing efforts and identifying broader advice needs for servicing, that will increase share of wallet. Further, by revealing which types of clients are most linked to certain services (e.g., investment management, insurance or tax planning), segmentation provides important insight for improving revenue generation.

Clearly, those firms that have a more granular perspective of their clients will be well-positioned to market and deliver a compelling service offering to prospects and clients. Despite the potential benefits, however, almost half of all firms surveyed in the Growth by Design study have yet to conduct any form of client segmentation (see Figure 3).

Level of client segmentation by stage

Of those firms that do conduct client segmentation, some have segmented clients based on revenue, assets or profit alone while others pursue a multi-dimensional segmentation model that provides greater insight into broader client characteristics. For example, capturing factors such as client occupation, source of wealth, preferred relationship style and other qualitative characteristics will help to form a clearer guide for determining the most appropriate target market.

Client Value Proposition Hinges on Desired Outcomes
With a defined target market, the firm can think more clearly about what outcomes clients value most in order to better articulate and implement the value proposition for the firm. The development of a unique client value proposition is central to building an offering designed for a specific target market.

Use of client value proposition

Standout firms understand this and their discipline regarding value propositions further differentiates their marketing capabilities. This was particularly true for the firms we refer to as Standout Innovators, the largest and most successful in the industry, all of which reported having a compelling value proposition that was easy for clients to understand and distinct from their competitors. Just two-thirds of other Innovator firms at this stage had the same level of confidence.

Defining and articulating the value proposition requires that a firm truly stands in clients’ shoes and considers the desired outcomes that must be achieved for clients. For example, just beating an investment performance benchmark or having a written financial plan are probably not desired final outcomes for most clients. What matters more for clients is to achieve a sense of comfort and security as it relates to their financial lives.

The outcomes must then be consistently delivered to each client through disciplined implementation; it is simply not enough to tell the firm’s “value story” to prospects and clients. Just over two-thirds of all firms surveyed indicated that they have established a client value proposition and slightly over half of those firms with a defined value proposition believe it is consistently implemented.

Without the alignment of all staff members to the delivery of the value proposition, client satisfaction cannot be assured, the firm’s reputation for service is put at risk, and marketing will suffer as well. While the development and implementation of a value proposition is a practice most common among larger and more mature firms, firms across all stages of development can create and implement a unique value proposition that supports them well when pursuing a target market and delivering value.

While marketing may not be the strongest suit for many advisory firms, building stronger marketing capabilities represents an exciting opportunity for growth. A well-defined target market and a clear understanding of the valued outcomes the firm provides form a solid foundation for improving these capabilities. For firm executives seeking to achieve more deliberate and aggressive growth, further guidance for strengthening firm marketing capabilities is provided within the Growth by Design report including direction on pricing practices, client retention strategies, developing a marketing plan and a marketing budget.


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