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.
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.