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.