As financial planning slowly and steadily builds itself as a profession, there has been an increasing focus on how to widen the scope of financial planning to reach more of the population. While some recent efforts to expand the reach of financial planning services may not be purely altruistic, there are many CFP certificants (69,000, according to the CFP Board), making it increasingly appealing for advisors to seek out new audiences to grow their businesses, rather than compete in the same bloody red ocean of their competition.
Yet notwithstanding that appeal, financial planners have struggled to extend their services. The promise of the web and the potential efficiencies of technology create the potential to bring down the cost of financial planning and make it more accessible to the masses. That’s the case even as planners find they may soon be in competition with the technology itself that delivers services directly to the public in the form of “robo-advisors.”
However, the real inhibitor to extending financial planning to the masses is not about using technology to drive down the cost of delivering financial planning, but how to get new clients in the first place. That’s especially the case given the small or non-existent budgets that most planning firms have for broad-based marketing programs.
So the real challenge in bringing financial planning to the masses is not about the cost to deliver it, but about the incredibly high cost necessary to get those clients in the first place. When we figure out how to bring down the cost to acquire clients, we will figure out how to truly bring financial planning to the masses.
Defining CAC: Cost of Client Acquisition
In any business, the ultimate path from gaining a new client/customer to generating a profit from the product/service sold to them involves several costs, including basic overhead costs to operate the business and additional costs to produce the good or service itself.
Yet beyond the raw costs to produce and deliver a particular good or service, there are also costs to market and grow the business, or what are generally called “CAC” – Client/Customer Acquisition Costs. After all, if no one knows about the product or service, and/or they don’t receive information that helps to convince them to purchase the product/service, there won’t be any revenue generated. The nature of CACs vary by the line of business, but might include anything from marketing and advertising campaigns, to giveaways and free samples, to websites and marketing brochures, and so on. Generally, any cost that falls into the category of finding prospects, or helping to turn prospects into customers/clients, is part of the business’ CACs.
In the context of a financial planning firm in particular, CACs would include the costs of website design, brochures and other marketing collateral, prospect seminars and events, and buying “leads” or paying for various lead-generation services. Less common CACs for advisors would include advertising and paying solicitation or referral fees.
The Impact of CACs in Practice
A business like financial planning presents some unique challenges. The service is intangible and difficult to explain, general public trust in financial services is relatively low and the price point (the cost of a financial plan) is not cheap. It can thus be very difficult to find prospects and convince them to actually become clients. In other words, financial planning is a world with relatively high client acquisition costs.
This challenge is apparent in numerous, subtle ways across financial advisory firms. Many firms have become resigned to the fact that since marketing is so expensive and relatively ineffective—you need to spend a lot to get any real benefits (i.e., clients) from it—that they just skip it altogether and rely on referrals alone for growth. In other words, the fact that referrals are the most common approach to growing a practice may have less to do with the idea that it’s a “best practice” and more to do with the fact that every other method is just so darn expensive. That’s the consequence of having very high CACs.