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What the Fastest Growing RIA Firms Do Differently

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What differentiates high-growth financial advisory firms from low growth firms? It’s a burning question for many firms but a complicated one to answer, especially in this COVID-19 days.

“The challenges are different,” says Bryce Skaff, co-head global client group at Dimensional Fund Advisors, who spoke in a recent webinar with Ben Harrison, head of advisor solutions at BNY Mellon | Pershing, about what DFA is hearing from advisors. 

“Referrals are less frequent; it’s a longer prospect conversion cycle [and] the leads that do come in are less warm … so the skills and tactics required to convert something from lead to prospect to client may be a little bit different from what people were used to in the past.”

In addition, according to Skaff, is the ”tremendous challenge” of keeping investors disciplined and confident given the volatility and unexpected returns in the market.

There’s also the reality that the top quartile of firms, which DFA defines in terms of revenue growth, acquire four times as many of their clients through acquisitions (12%) as low-growth firms (3%).

Top Firms Have a Marketing and Business Strategy

Another big difference between top and bottom revenue collectors among financial advisory firms: a dedicated marketing and business development strategy. 

The fastest growing firms on the Pershing platform currently are those that have such a strategy in which they had significantly invested before the pandemic and continue to invest in now, said Harrison.

“Maybe this pandemic has started to reveal the fact that to solely depend upon referrals and not have a dedicated business development and marketing strategy that you’re continuously invested in is not fueling growth,” said Harrison.

How Growth Happens

“Growth doesn’t just happen,” said Skaff. “It’s a return on investment.”

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That investment for high-growth firms involves more spending on employees overall and specifically more spending on employees involved in client-based functions rather than in investments and operations, said Skaff, noting that across the industry “compensation is the biggest expense.”

High-growth firms also treat technology differently than low-growth firms, according to Skaff. They don’t necessarily spend more on technology but use it better. “Integration and institutionalization of technology seems to be more robust with top growth firms than bottom growth firms,” said Skaff.

High-growth advisory firms also communicate more often with clients than low-growth firms especially digitally through emails and social media, according to Skaff.

Such communications have accelerated during the pandemic, but high-growth firms had twice as much digital servicing activity than low-growth firms “well before the pandemic,” Skaff said.

“Firms already used to virtual connectivity and digital servicing and even digital prospecting were much more comfortable in the transition to this environment and … probably had some advantages for sure,” said Skaff.

But virtual communications is not enough to drive client activity, according to Skaff. Firms also need to make digital connections that support their values and communicate their value propositions, he said.

DFA’s latest forum with chief marketing officers of advisory firms found an increased focus on lifestyle webcasts and short-term videos during these times, including virtual classes for clients on making cocktails and getting comfortable with using technologies (for older clients) and and virtual engagement with a traditionally disengaged spouse in an advisor-client relationship.

DFA’s ETF Plans

DFA itself is modifying its investment offerings due to requests from its clients, financial advisors. The investment firm known for its factor-based mutual funds has filed with the Securities and Exchange Commission to offer its first ETFs — a U.S. multi-cap fund, non-U.S. developed market ETF and an emerging markets equity ETF, all actively managed — which it hopes  to introduce later this year.

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