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Marketing Matters to Firms That Want to Grow

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For many advisory firms, deliberately focusing on attracting new prospects and converting them to clients is a function that is all too convenient to ignore. Just 43% of the firms surveyed in our latest FA Insight Study of Advisory Firms cited marketing and business development activity as a primary factor in driving their past growth.

To be fair, firms may often have the will to be better marketers but lack the necessary skills. For others, however, their lack of emphasis on marketing and business development is a point of pride, with shareholders believing these activities to be less essential given their firms’ ability to deliver superior client service.

Even the best servicing firms, however, can benefit from more proactive marketing initiatives. An effective marketing and business development function is an increasingly critical component for business success and vital for achieving sustainable growth.

Expanding demand for objective financial guidance and appreciating security markets have figured prominently in fueling advisory firm growth in recent years. These fertile conditions, however, provide little incentive for firms to establish true marketing expertise. As a result, marketing is the most underdeveloped of all business capabilities for many firms. Ad hoc, under-resourced and disconnected marketing efforts all too often characterize the typical firm’s approach to new client acquisition.

Likely at some point in the not so distant future, equity markets will fail to deliver double-digit returns, the appetite for advice brought about by a tidal wave of baby boomers will pass, and objective advice will no longer be the differentiator it once was. Where will future growth come from? We address the question here, in our fourth and final article highlighting findings from “The 2014 FA Insight Study of Advisory Firms: Growth by Design.”

Change Will Be Required

As was highlighted in our previous article, just 13% of Growth by Design’s participating firms felt their marketing plans were effective (see Figure 1, below). Half of all advisory firms had no marketing plan at all.Annual Marketing Plan Development and Effectiveness

While less than half of firms cited their marketing and business development capabilities as a primary factor in past growth, nearly 70% of firms expect these capabilities to play a primary role in future growth. Clearly, practices will need to change for firms to make this shift. Fresh thinking with respect to marketing and business development will be required for firms looking to do more than mimic general market growth (or decline).

Marketing and Business Development Drives Sustainable Growth

One group of firms parsed from our study results exemplifies this fresh thinking. The “sustainable-growth” firms are defined according to their ability to achieve strong growth without encountering any of the negative impacts. (For comparison, those firms that experienced significant growth but also encountered negative growth-related side effects were deemed “growth-at-risk.”)

Not only did sustainable-growth firms grow better, but they grew faster as well. The 19% median revenue growth in 2013 for sustainable-growth firms was nearly four percentage points higher than their peer firms. Marketing and business development practices were a key differentiator behind the growth success for these firms. While 60% of sustainable-growth firms credited their marketing and business development effort as a key factor in driving recent growth, just 28% of growth-at-risk firms specified the same.

To maximize return on their marketing and business development investment, sustainable-growth firms stress planning and oversight. They are more apt to have an individual dedicated to marketing or new client growth, develop a marketing plan, and report that their plan is effective in attracting new clients (see Figure 2, below).

Marketing Planning, Sustainable vs. Growth at Risk Firms, FA Insight Growth by Design

Quality of Effort Supersedes Quantity

Across our study, firms spent an average of 2.7% of total revenue on marketing collateral or activities (excluding costs associated with a firm’s marketing-related personnel). Client and prospect entertainment accounts for most of this outlay, followed by expenditures on advertising, seminars and newsletters.

Consistent with past study results, how firms spend their marketing dollars and what they spend it on is far more meaningful than the size of their budgets. This is certainly true for our sustainable-growth firms. We also found this to be true when filtering out a slightly different group of firms from our study data—Standouts.

FA Insight defines Standout firms according to their success in growing revenue as well as generating income. By excelling in these areas, Standouts demonstrate the ability to build and sustain enterprise value. As shown in Figure 3 (below), the share of revenue that Standout firms dedicate to marketing is significantly less than their peers across every development stage.

Percentage of Revenue Devoted to Marketing, Standouts vs. Others, FA Insight Growth by Design

Whether a firm excels at building value or growing well, achieving a greater return from marketing and business development resources is a common characteristic for these firms. This is a result of a greater propensity to do marketing planning and to assign accountability within the firm to ensure that the plan is implemented effectively.

While just 32% of all firms have a position dedicated to marketing or new client growth, this increases to 61% for the industry’s largest firms (Innovators). Typical responsibilities for these roles include developing and executing the firm’s marketing plan, managing the marketing budget, and reinforcing a culture of marketing and new client growth.

The greater structure that sustainable-growth firms place on marketing and business development also extends to how their professionals allocate time. For the sustainable growth firm, nearly one-fifth of the average professional’s day (19%) is spent on business development activities. This is more than double the 9% of time spent by professionals with growth-at-risk firms.

Specific Target Markets Enhance Effectiveness

Allocating more time to business development does not necessarily equate with business success if the firm’s marketing plan lacks focus. An effective plan defines how a firm best delivers value, the target prospects most receptive to these valued outcomes, and the most effective marketing channels for attracting them.

Level of investable assets dominates the ways in which firms define their target market (see Figure 4, below). Client age or life stage are also frequently utilized. This level of profiling, however, does little to narrow the firm’s field of prospects and enable marketing resources to be allocated.Target Market Characteristics

Actively Cultivate Alternate Prospect Sources

Frequently by default, referrals from existing clients are the primary source of new clients for many firms (see Figure 5, below). For most firms, client referrals are often a passive approach to new business generation. This passive approach, combined with loose client acceptance criteria, can overwhelm a firm by creating a variety of challenges. Advisory firms clearly have a significant opportunity to gain the attention and engagement of target prospects through more proactive and innovative means.Sources of New Clients, FA Insight Growth by Design

Consistent with their more structured approach to marketing and business development, it is not surprising that sustainable-growth firms are much less reliant on client referrals for new business. Instead, sustainable-growth firms work proactively to establish both informal and formal relationships with centers of influence, professional organizations and referral networks.

Summing Up

Firms must do more in order to sustain growth that extends beyond what is provided by market tailwinds. Based on the operating practices of the hundreds of participating FA Insight study firms, the keys to marketing and business development success can be summarized as follows:

  • Have a marketing plan and assign accountability. Set business development goals and ensure their achievement by detailing what types of activities must take place. Assign individuals to oversee these activities.

  • Recognize that quality of effort invested is far more important than quantity of effort. For example, the number of retirement planning seminars a firm hosts is meaningless unless the events attract targeted prospects and an effective process is in place for converting these prospects into clients.

  • Specify your firm’s target market in terms of who is most receptive to the valued outcomes you provide. Such definition will improve marketing effectiveness as well as operational efficiency once target prospects are converted to clients.

  • Proactively market through alternative channels. General market growth and passive referrals from existing clients are not reliable growth sources.

Applying these basic lessons will help to set a course for achieving a new standard in business growth.

While this concludes our article series based on the 2014 Growth by Design study, findings from “The 2015 FA Insight Study: People and Pay” will soon be available. Another record number of firms took part in this year’s study, and we look forward to sharing the highlights gleaned from their input.


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