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Referrals and Recruitment Are Key to Advisory Firm Growth

Strategies to win new clients in the face of market volatility.

By Jonathan Beatty

The first quarter of 2018 was a roller coaster ride for the markets, and more volatility is expected in the months ahead. This market climate comes as independent advisor firms round the corner on yet another year of record growth. Against a new tumultuous market landscape, it can be easy to assume that lower market values could dampen the pace of growth advisors have seen recently. However, advisors have never been better positioned to drive new client acquisition, and it’s this type of growth that will allow firms to continue thriving irrespective of short-term market conditions.

Independent advisory firms with $250 to $500 million in assets under management are especially well-positioned. According to Schwab’s annual RIA Benchmarking Study, these mid-sized firms already have an edge on growth, as evidenced by a 5.9 percent five-year organic compound annual growth rate, compared to 5.4 percent at the median and 4.5 percent at firms with more than $2.5 billion in AUM. With lean staffs and nimble processes, highly entrepreneurial cultures enable these firms to experiment with operational approaches that larger firms may not have the flexibility to attempt and smaller firms might not yet have the maturity to tackle.

Broadly speaking, new client acquisition is an outside-in and inside-out process. An external strategy promotes new asset acquisition through referrals and marketing, while an internal strategy to cultivate best-in-class talent helps firms scale and deepen relationships with their client base.

Build on Referrals by Investing in Marketing

Most advisors appreciate the importance of developing a referral strategy for attracting new clients. The savviest firms have replaced a “rainmaker” client acquisition model with firmwide referral processes. According to our benchmarking data, 75 percent of advisors already employ referral strategies with impressive results. Over the past five years, firms grew the number of clients at a median CAGR of 5.2 percent, with midsize firms adding new clients even more rapidly than the median, at a five-year CAGR of 5.6 percent.

While referral programs are effective at spurring new client acquisition, advisors can take growth to the next level by tapping additional strategies from the fastest-growing firms.

These firms—the top 20 percent of firms in the benchmarking study as measured by organic growth rate—complement an unwavering commitment to referral strategies with an equally robust marketing strategy. Referrals and marketing strategies combine to support impressive new asset growth in 2016 for the fastest-growing firms. Marketing efforts include networking, community involvement, a strong website presence and hosting or attending seminars and events.

The thought of running two parallel programs may be anxiety-inducing for leaders at midsize firms, but as a practical matter, marketing should be seen as a natural extension of existing referral efforts. Since referrals and marketing share the common goal of acquiring new assets, the two approaches should be designed to be mutually beneficial and reinforcing. Firms with a marketing plan in place understand this relationship well. According to Schwab’s Independent Advisor Outlook Study, half of advisors say the goal of their marketing plan is to drive net new asset growth, while nearly 39 percent say it targets prospects and 37 percent believe it will aid client referrals.

Focus on Talent for an Optimal Client Experience

Without a thoughtful talent strategy to support it, winning new clients will be elusive. High-performing employees enable firms to run efficiently, serve complex investor needs and deepen client relationships. For midsize firms—where the organizational structure may be more fluid and compact than at larger ones, and where the addition or departure of just one employee is felt acutely by colleagues and clients alike—the right team is a non-negotiable.

During periods of growth, the right talent can be a firm’s supercharger, especially when growth occurs against a backdrop of market volatility and heightened client anxiety. The right talent is critical to a smoothly running and scalable business and will ensure clients feel valued, supported and that the firm is responsive to their needs. We have seen many midsize firms bring on relationship managers to provide clients with individualized attention. Firms are also increasingly hiring staff with specialized qualifications, such as CFP, CFA, CPA or J.D., to address clients’ varied and unique situations.

Charting a Course for Enduring Growth

These two drivers of growth—attracting and winning new assets and cultivating top talent—are inextricably linked. As firms grow, they draw in the best and brightest staff. With a high-quality team, they deliver a superior client experience, leading to increased share of wallet and driving new client referrals. As firms grow more, in turn, they acquire the scale and resources necessary to support proactive marketing strategies.

Growth-minded advisors that deftly combine these parallel approaches can be successful in building enduring enterprises that can sail boldly onward no matter how rough the seas may be.

Jonathan Beatty, senior vice president, is on the Schwab Advisor Services leadership team and leads the business’s sales and relationship management team. 

This article was adapted from remarks delivered to more than 100 advisors at the firm’s annual ADVANTAGE conference.

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