Close Close
Popular Financial Topics Discover relevant content from across the suite of ALM legal publications From the Industry More content from ThinkAdvisor and select sponsors Investment Advisor Issue Gallery Read digital editions of Investment Advisor Magazine Tax Facts Get clear, current, and reliable answers to pressing tax questions
Luminaries Awards

Practice Management > Building Your Business

What to Do If Your Lead Rate Is Falling

Your article was successfully shared with the contacts you provided.

In the early days of the financial planning and independent advisory industry — some 20 to 30 years ago — the industry was largely what we call “transactional.”

That is, the vast majority of most firms’ revenues were generated by selling financial plans and the investment “products” that went into them: typically tax shelters, limited partnerships, annuities, life insurance, and mutual funds.

While most independent firms were too small to do much marketing, when they did, it was to explain how they were fiduciaries, which made them better than big brokerage firms that sold products.

The independent advisory industry has come a long way since then. Today most independent firms are service businesses, providing financial advice and investment management for an annual recurring management fee. And, yes, I’m aware this isn’t news.

What you probably don’t realize is many of the businesses supporting independent advisory firms haven’t kept pace. They still offer business advice to advisory firm owners as if it’s still a transactional business. One of the most glaring examples of this is found in marketing advice.

Granted, even the largest independent firms can’t afford FleishmanHillard or another large marketing agency. And sadly, if you Google “marketing for recurring revenue streams,” you won’t get much useful information.

This means that advisory owners who want to grow their businesses are going to have be proactive in finding savvy outside partners to help with their marketing efforts.

Falling Leads?

But here’s how to break down the realities of this situation: product-sales businesses vs. recurring revenue stream businesses. Back in the old days of “advisory product sales,” sound business management dictated that if the number of leads contacting your firm is falling, you need to do more marketing.

However, when the number of leads is falling in a business where the primary revenue stream is ongoing and recurring, it’s not a marketing problem, it’s a client-service problem.

Why? Because in most independent advisory businesses, the vast majority of new clients come from referrals by existing clients who are engaged and are having a great experience within your firm.

Therefore, if your lead ratio is falling, you know the problem. As falling referrals have the most impact on your growth, focusing your attention on marketing will only make the problem worse.

Simply put, you are not connecting with your clients as well as possible. That’s not to say that you’ve never connected with your clients, chances are you are not focusing on them as much as you once did or could, likely because you are focused on marketing.

Most clients are with you for the long term and many client cycle times are indefinite. Consequently, a focus away from client service and onto marketing is not going to solve an engagement problem.

In a recurring revenue business, when your lead rate is falling, your close rate most likely also is falling, and this is a service problem. What do you do about it?

Be a Communicator

A good place to start is communication, although not quite as fun as the creative process of marketing. Review your client service processes and delivery. Has it changed recently? Is it being done by all your people consistently? If not, what are you going to do about it? And, what training can you put into place to ensure it is? Do the advisors need more training?

This is an area where leaders must set their attachment to marketing aside and take a hard look at the people they are developing. We all want to be offering the best service and training, but, a key to running a successful business is the ability to honestly access the results of other people’s work — and then use it to make changes in the business to make your employees better.

Also, look at your own motivation as a leader. Did you get so focused on growth that you neglected employee development? Are your advisors and/or staff overloaded?

As your business grows, so does the workload of you and your team. To maintain a high level of client service in a recurring revenue stream, there’s a limit to the workloads that you and your people can handle effectively. This is an area where owners often fail to see things the way they really are.

Often this blindness results from the desire to keep revenue high, expenses low and profits higher. You have to ask whether it’s really prudent to save a few (or a lot of) dollars, but lose the power of your primary lead source, which is referral rates, for future growth.

Owners tend to have a blind spot when assessing whether their staff is overworked. They may ask the question but often don’t want to know the real answer or take responsibility for it. Employees tend to want to please the boss. And, the good employees tend to complain least.

Great business owners and leaders keep a keen eye on their people first and do what they really need to do to keep their employees balanced, energized and happy. As a result, they are serving the people, not their growth goals alone. And they do this because falling client service is never a position you want to be in as a business.

Inside the Numbers

Let’s say you have the people part figured out and client service is great, but you want to increase revenue at a faster rate. The answer is to look inside the numbers.

The fastest-growing firms in the RIA space are the ones that have the highest referral rates. Unfortunately, we don’t hear much about those firms in the media. While the trade media today likes to talk about issues such as M&As, marketing and advertising, a story about referral rates is less appealing.

But here’s what we know from the data we’ve collected: Over the course of the past 20 years we have analyzed thousands of firm P&Ls, and there is a key expense line item that stands out in the best, fastest growing firms. That line item is “marketing expense,” but can be deceiving if you don’t dig deeper into what it really includes as typically it acts as a catch-all area.

In reviewing what the outperformers spent their marketing dollars on, we found they spent roughly 3% of revenues on client appreciation (i.e., newsletters, events, tools, helpful guides, reading and educational materials, etc.), which they categorized as marketing.

Only about 1% of total revenues was spent on true outbound marketing programs, such as advertising, events, seminars, podcasts, websites, brochures, etc. In other words, over 75% of what the firms call “marketing” is being spent on communications with existing clients.

What do these numbers really tell you? The way to grow an advisory firm is not a true marketing expense. Categorize it on the P&L however you want to. But, the bottom line is that client appreciation makes growth happen.

To keep it happening, you must back up that client appreciation with good people who deliver great advice. If you cannot do that, no amount of true marketing investment is going to make a difference.


© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.