Advisors Need More Than Referrals To Grow Sustainably

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RIAs must grow sustainably in order to achieve the scale needed to deploy the latest technology systems and build out a centralized infrastructure. Relying wholly or primarily on referrals is a foolhardy strategy.

As the independent RIA model continues to grow in prominence, industry forces have been converging to fundamentally transform the way financial advice is delivered, working in the model’s favor. New RIA registrations have doubled since 2000, creating more competition while driving industry innovation. This challenge drives the need for rapid growth among RIAs.

Firms with less than $500 million in AUM may not be able to afford the investment needed to sustain their businesses over the long term. Yet according to the 2017 Fidelity RIA Benchmarking Studies, revenue growth for mid-sized RIA firms has slowed dramatically, and client growth has fallen to the lowest level in the last five years. Over the last several years, the drag on client asset inflows has been masked by asset appreciation and acquisitions.

The challenge for firms relying on acquisitions or asset appreciation for their growth is they relinquish control of their destiny. An increasing number of RIA firms are responding to rising competitive pressures and the need to build scale by jumping on the M&A merry-go-round. Peer-to-peer and roll-up M&A activity is expected to increase significantly in the coming years. While acquisitions can provide a source of asset growth, they come with a high cost and there is no guarantee that legacy clients will follow.

Many advisors attain strong initial growth by bringing on their clients from previous firms, referral sources such as lawyers and accountants willing to send leads, and, of course, their friends and families. They also may qualify to be a preferred partner to a referral program such as Schwab.

Assets pour in, until they slow.

That’s when reality sets in. Traditional methods of client acquisition cannot sustain a sufficient rate of growth to offset the loss of AUM through market declines or client attrition. How will firms get their next clients?

Firms struggling to grow need to commit to a structured growth strategy that places their destiny squarely in their control. However, according to the Fidelity RIA Benchmarking Study, fewer than half of firms have a strategy in place or know how to develop one.

Successful firms that are on a path to sustainable growth focus on a well-conceived growth strategy with the following essential elements:

A differentiated story

In a highly muddled and fiercely competitive landscape, firms must be able to differentiate themselves and that starts with having a great story to tell. We’re not talking about a branding statement or value proposition; rather, it needs to be a comprehensive and compelling narrative that clearly explains what the firm aims to achieve and why it’s uniquely qualified to do so. It should speak convincingly to your target market about what they can expect to receive from your firm that they can’t get from other firms. It might highlight a niche client base and expertise, unique investment approach or specialized services.

A digital-marketing strategy

In a digitally wired world, it is impossible for any business with growth ambitions to exist, let alone grow without a digital-marketing strategy. The strategy must be based on an integrated digital apparatus that includes a high-quality website focused on delivering timely content, a social-media presence where prospects and clients spend their time, and an email marketing system built on a marketing-automation platform.

When fully integrated, your digital-marketing system will not only attract targeted visitors, it will engage and convert them into leads, cultivate them, and move them through the funnel. With the use of advanced data analytics extracted from your marketing automation system, you will know who’s visiting your website and social-media sites and their level of interest. Armed with that information, your marketing person or junior associates will have a higher success rate in converting leads into qualified prospects.

Implementing a digital-marketing strategy is not an easy undertaking, but it is essential if your firm has growth ambition. However, done right, the ROI on a well-conceived strategy will propel your growth well into the future.

Read the full article by Dan Sondhelm, Advisor Perspectives


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