Almost 10 years ago, I wrote about a serious issue for advisors that I humbly believed was not getting the attention it deserved: the lack of career paths for young advisors. In this article, I present for your consideration another major issue that the industry, and especially owner-advisors, must address or suffer the consequences: the lack of an integrated marketing approach to grow their firms in the 21st century.
In February 2005, I wrote a cover story for Investment Advisor called “The Great Divide.” That story was about the lack of professional career tracks in the majority of independent financial planning firms and its primary effect: the failure to attract young professionals to the industry. While young financial planners applauded, I received a great deal of pushback from many owner-advisors and industry gurus who failed to see “the problem” at the time the article was published.
Since then, the planning profession has come to realize that advisory firm growth depends on adding young advisors, and most consultants became busy helping firms create career tracks to turn young, next-generation advisors into lead advisors and, eventually, into owners.
Ten years later, we see the same scenario playing out around a different but related area in the advisory community—marketing. Most of today’s independent advisory firms were started decades ago and are still managed by “rainmakers.” These are owner-advisors who out of necessity or natural inclination focused on attracting new clients as well as providing advisory services to them. Consequently, most advisory firms today are structured to support those “rainmaking” efforts and as a result desperately need to replace those rainmakers in their firms.
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The advisory business, however, has changed dramatically over the past 25 years, as have advisory firms. Firms are larger, ownership succession is at crisis levels, online advice is driving fees down and, due to a serious talent shortage, recruiting—especially young advisors with rainmaking talent—is nearly impossible.
To continue to grow in this new reality, advisory firms will have to let go of their rainmaking roots and shift the way they bring in new clients. How? By redesigning themselves and their firms to embrace an integrated marketing approach where the firm itself markets for the advisors, instead of advisors marketing for the firms.
I predict that within the next seven to 10 years, the consultants who are now human capital gurus will also add marketing gurus to their teams. Many of the firms that don’t become integrated marketers will be absorbed by those that do.
Twenty-five years ago, most independent firms were relatively new. They were run by their founding advisor(s), had less than $250,000 in revenues and had very limited resources. Naturally, their growth largely depended on rainmaking by their owner-advisors. Today’s advisory firms are older, larger, have more clients and are either run by successor advisors or are in the process of being turned over to successors.
But as firms grow, the number of new clients who can be attracted by one or two rainmakers usually can’t keep up with most firms’ growth goals. Consequently, the importance of rainmaking decreases, while the importance of bringing in new clients through target marketing, client referrals and great client service (to keep existing clients happy enough to refer their friends) significantly increases.
There comes a point for most firms when a solid marketing plan and client referrals become more important than the rainmakers. Five years ago we saw this happening around the $1.2 million mark in revenue; today it’s closer to $750,000 or so in annual revenues.
The rainmaker’s importance continues to shrink as firms grow, and eventually the need for a rainmaker disappears. Owner-advisors who want their firms to grow beyond a small or mid-size firm into a business with more than $1 million in annual revenues will need to adopt a structure that supports growth well beyond rainmaking. That structure must include a comprehensive marketing strategy, firm-wide integrated marketing and great client service.
Some advisory firms grasp the need for marketing, but many retain a rainmaker mentality. That mentality leads to poor results. Client service is mediocre compared to their peers, and clients’ experience with the firm is inconsistent. The way they describe their firm and what it delivers to clients varies widely from person to person and even rainmaker to rainmaker. Consequently, they’re often quickly disappointed with their marketing efforts and hastily conclude that marketing doesn’t work.
In some cases, these disappointing results stem from amateur mistakes or bad execution. The biggest mistake we see is failing to consistently communicate meaningful differences about their firm. Rainmakers understand intuitively how to tell a prospect how they (the rainmakers) are different, but have a very hard time communicating how their firm is different. These differentiators must resonate with retail investors. If you are still uttering any of these common phrases about your firm—“We’re independent,” “We’re fee-only,” “We take care of our clients,” “We have personal relationships with our clients”—you’re not communicating how you differ from your competitors.
These pathways to failure are symptoms of a larger problem. In our work [Disclosure: I have merged my consulting firm with an advisory marketing firm], we’ve come to realize that the root cause of most advisory marketing failures is the lack of a foundation to make marketing plans successful. Yet owner-advisors often resist any suggestion that their short-sighted rainmaking approach to managing their firm is their biggest roadblock to success.
Laying the Foundation
To create a dynamic advisory business today, owner-advisors need to turn their firm into a marketing machine. That is, they must create a business that markets itself and thus supports and enhances its marketing strategies. In both larger and smaller firms, it’s important to get the whole firm and all of its employees involved in “marketing.” That approach must begin with the owners, who need to change their perspective from rainmaking to firm-wide new-client acquisition.