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.
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).
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.