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How Marketing and Client Relations Cement a Successful Advisory Business

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In building an investment advisory business, providing the right advice for each client is the best foundation. But the foundation cement is likely to be marketing and client relations—the sometimes arduous effort to win and keep clients. Clients may remain loyal during poorly performing markets. But a shoddy approach to gathering or serving clients is often the reason clients become dissatisfied and consider taking their assets elsewhere, regardless of how markets are doing.

In the past several years, there have been large and rapid shifts in how advisors gain new clients, according to data collected by AdvisorBenchmarking. In the depths of the economic downturn, the old business model of passive referrals proved inefficient. Now, as a mild recovery has taken hold in the industry—in terms of asset, revenue and profit increases—advisors have returned to the approach of passive referrals in a significant way (see chart 1 below). Other active channels—e.g., seminars and internal referrals—have declined. The active channel that has seen a relatively strong increase is advisors’ referral networks, often called Center of Influence (COI) marketing, and entails gaining new clients from attorneys, accountants and other specialized professionals.

Targeting the right clients is a key to building a successful practice. The term “ideal client” is discussed quite often in the advisory business, which can range from someone who is in the advisor’s age bracket to a client who shares a particular investment philosophy, lifestyle or even a hobby with the advisor. But regardless of how many clients are courted for these reasons, in reality, most advisors target clients mainly based on wealth—the basis of financial advisory fees.

According to data collected by AdvisorBenchmarking (see chart 2, left), wealth range is the largest factor cited by advisors in selecting potential clients, at 62%, compared with only 34% for the next highest-rated criterion—lifestyle situation. Moreover, the data suggest that wealth range has remained the largest factor in client focus for several years. Only about a third of advisors target clients based on lifecycle, age or career. And the focus on specialized needs has been steadily falling. Even the percentage of advisors not focusing on any target segment has been slowly rising.

The RIA practice is an individual relationship-based business, with about half of clients in the moderate (26%) to sub-moderate (22%) high-net-worth market, and about a third (35%) in the high-net-worth market. Taken together, the data (see chart 3, below) indicate that the vast majority of RIA business (83%) is conducted in some segment of the individual high net-worth market—and those numbers have remained consistent over the past five years. Choosing clients based on assets alone may not be enough, however, as age, career and lifestyle can have significantly different impacts on investors—and thus their financial needs—within the same wealth range.

There has been little year-over-year change in marketing methods cited by advisors. Among the top three strategies, “events marketing” categories (seminars, client appreciation events) appear to be holding firm, while newsletter marketing is down. And there appears to be a slight increase in electronic initiatives such as online searches, webinars, email marketing and conference calls. It is not surprising to see these numbers holding steady given the lack of focus on marketing from a planning standpoint. Just over half of firms report that they have no marketing plan at all. And a quarter of firms don’t target specific types of clients, which is an essential first step in building a plan—knowing whom you are targeting and how to reach them.

And, of course, once clients are on board, regular communication is paramount. Advisors have been continuing the trend started in 2009 of spending more time directly with clients either in person or over the phone (see chart 4, below). Following the market crisis and the recession, advisors knew instinctively that they needed to be more proactive with clients and relied heavily on more personal communication methods. The use of phone calls has nearly doubled from 51% to 96% in the past two years. And in-person meetings have increased from 59% to 93% in the same timeframe. Advisors cut back on less personal methods, such as newsletters, which had become more popular in 2010; newsletter use rose to 74% of firms in 2010, but has now dropped to 50%, which is below where it was two years ago. However, in-person marketing initiatives, like “special occasion” communications and events, have shown staying power. They rose significantly last year and have remained popular, presumably because any opportunity to be in front of a client is seen as valuable for both client retention and acquisition.

Many advisors find that time and resources invested in client acquisition and retention is amply rewarded. We believe those advisors who go after the right clients and spend the most time with the clients they have will be able to significantly strengthen relationships, receive more referrals and increase their asset flows, all of which can strengthen the foundation of any practice.

AdvisorBenchmarking is a research and analysis center focused on the registered investment advisor (RIA) marketplace. Study results quoted in this article are based on the 300-plus RIA firms that took the online survey in March-May 2011. 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 Guggenheim Investments. The analysis on 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 Guggenheim Investments or any of its affiliates.


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