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Practice Management > Building Your Business

Contentment or Complacency?

By Mark Tibergien

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The rate of growth in the average advisory firm is slowing dramatically. But why?

The level of complexity in our financial lives is increasing. Thousands of investors are chasing after an impossible-to-value Bitcoin bonanza. More people depend solely on social security for their retirement income than ever before. Hundreds of new millionaires are added to our population each year. And a growing number of younger people are thinking about how to make an impact with whatever wealth they accumulate.

In other words, consumers in every stratum face choices that could benefit from professional help. Unfortunately, advisory firms are not attracting new clients at a rate they should be given the current need or demand. Advisory firm revenue growth hit a year-over-year high of 16% in 2013, and then began plunging — to 8% in 2015 and 5% in 2016, according to the 2017 InvestmentNews Compensation & Staffing Study sponsored by BNY Mellon’s Pershing.

Many factors are contributing to this incongruence, including a lack of physical capacity to serve more clients and a high rate of attrition due to de-accumulation of assets by retiring and dying clients. However, the most significant causes for the recent decline in firm growth may have more to do with poor positioning, bad branding and message-less marketing.

Evidence of this dynamic appears in a common refrain I hear from advisors: “I don’t have to do marketing — I have all the business I can handle and am making more money each year.” Sadly, many advisors do not recognize how one of the longest bull runs in history has made them feel invincible.

Having been around this business through multiple market cycles, I have a visceral reaction to complacency. I react even more poorly to false confidence created by circumstances beyond one’s control.

As one of my former colleagues described to me in 2008, “The seeds of destruction are sown in good times.” While I cannot predict when the good times will end, I can predict that advisors who do not take ownership of their marketing, their brand and their positioning will lose opportunity to those firms who understand the need to control their narrative and be actively present in the markets they choose to serve.

Good Times, Growth Times

In this spirit, I asked Megan Carpenter to provide insight into how the best advisory firms are raising their visibility and driving greater growth. Megan, together with Jason Lahita, is a founder of FiComm Partners, one of the leading marketing and communications firms for independent financial advisors, with offices in California and New York.

Megan observes that most advisors depend on referrals for their growth. She describes a referral as “a well-timed introduction from a raving fan.” In other words, timing is everything. Advisors who wait for introductions from existing clients must pray that the most loyal ones are on constant alert for people who are experiencing a liquidity event, a change of life transition or a crisis.

Further, advisors must trust that these helpful clients are able to articulate what you provide and why you are special. While this confluence does occur from time to time, most advisors only attain a handful of qualified new prospects each year from existing client referrals.

As an alternative, some advisors participate in referral programs at their custodians who have a substantial retail business. The cleverness of this strategy is that advisors don’t have to invest in building their own brands since they can obtain leads from retail organizations as if they were representatives of these firms. However, advisors say that the conversion rate on these leads is low and the perpetual payment back to the custodian makes the client acquisition cost expensive.

It also makes some advisors uncomfortable when they declare themselves “independent” because they are forced to keep those assets with the referring company instead of giving their clients choice. These reasons may not be sufficient to abandon such referral programs if the means justifies the end, yet advisors must not let their marketing muscle atrophy.

For those who wish to create their own market presence, Megan suggests that advisors do for their business as they would do for their clients. “Begin with a plan,” she says. The plan should incorporate your business vision and service models, distinct and differentiated messaging, definition of your optimal client, measurable goals, and the strategies and tactics designed to achieve those goals.

She breaks all marketing plans into three main components:

  1. 1. Brand infrastructure. It is important not to stop at the creation of a logo and collateral material, but to think about the identity you want to create in the market, your messaging, your website, your brand collateral and your social media profiles.

  2. 2. Content creation and delivery. The language many advisory firms use can be mushy or too similar to other advisors or financial service providers.

    Your intellectual capital and expertise is unique to you. Use that power, and think about how the words and images will resonate with the market as well as internal stakeholders. It’s also critical to think about the regularity and timing of messages.

  3. 3. Digital marketing. Perhaps the biggest challenge today is to be relevant in your messaging while being responsive to how prospects and clients consume information today.

A thoughtful approach to digital advertising, public relations and social media can create a very high impact. So too can the use of digital vehicles to gather intelligence on the marketplace and to perform helpful analytics.

Once a plan is in place, Megan recommends developing actionable and measurable tactics. While the number of referrals is important, it is not the only objective of an effective marketing plan. Client loyalty is a critical leading indicator, as is brand presence.

Studies show that when a professional service business is one of the top three providers in their market, they will get twice as many opportunities to do business as the fourth next firm. This does not require the firm to be the largest in size, but the largest in presence.

What to Do

Key to an effective plan is making a resource commitment to execute the plan. This means money and people. Advisory firms typically spend less than 2% of their revenues on marketing, while large retail firms such as Schwab, Fidelity, Vanguard and others spend orders of magnitude more.

Clearly, small advisory businesses do not have the ability to compete on that level in terms of dollars, but targeted communications spending allows you to convey a differentiated message in the communities you choose to serve. Think in these terms — if you aspire to grow your top line by 20% year-over-year, it will be difficult to generate that volume if your marketing is just a whisper.

Megan emphasizes that marketing does not begin and end with advertising and public relations. To convey who you are and why people should do business with you, develop your brand. Your brand begins with your public image but is realized ultimately by how you touch clients and prospects.

Consider how your physical office looks relative to the message you wish to convey — does it say cheap and tacky, or opulent and excessive? Do you communicate directly or abstractly? Does your staff welcome clients in a way that demonstrates their importance? Does your reporting reflect all that you claim to do for the client or does it emphasize one dimension of the relationship, for example investment management? Is your sales process consistent with how you want to be seen?

The point is that small efforts combine to make a big impact.

The financial advisory profession is experiencing a material transformation from practice to business. Firms that present themselves to the market as reliable, relevant and responsible enterprises likely will prevail. Advisors who do not take control of their identity will find it harder to compete with more assertive contemporaries.

While you always want the potential for referrals from happy clients, it’s important to recognize that referrals require coincidence and serendipity. A disciplined approach to marketing and branding will help advisory firms achieve greater results.

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