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.
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