Advisor Confidence Index (ACI)

Examining Best Business-enhancing Practices of Top Firms

Apple is one of the most closely followed companies in the nation for several reasons. In addition to introducing products that define a market, Apple utilizes many techniques to increase its chances of success: partnering with other firms and exploring new lines of business, for example. Likewise, most advisors utilize different tactics and techniques to build their success and enhance their practices. Some are partnering with other firms while others are exploring new lines of business and adding new services and new staff members to support them.   In analyzing the way advisors managed their practices during 2009, Rydex|SGI AdvisorBenchmarking uncovered a few common characteristics that distinguished top firms from their fellow investment professionals.   While there is no magic formula to making an advisory practice an industry best, we identified five characteristics that winning firms have in common: proactive and effective communication; referrals; alternative investments usage; technology optimization and expense discipline; and outsourcing. In this article, we will focus on proactive and effective communication and referrals. Next month, we’ll discuss alternative investments usage; technology optimization and expense discipline; and outsourcing. What is a "Top Firm"? "Top firms” are those with the highest growth rates, highest profitability and that offer at least four services to clients. This year, there were 23 firms that ranked as “top firms”– these firms are aggregated together to create our Top Firms’ Benchmark. It’s important to note that we did not consider firm size in identifying top firms, as we believe that smaller firms can have the right business model to fuel growth, enhance profitability and be successful. This year’s list is inclusive of a range of asset sizes that more accurately reflects the wide range of firm sizes in today’s market. 1. Proactive and Effective Communication When it comes to communicating with clients, top advisory firms operate proactively, not reactively. They outpace their average counterparts in usage of every communication method, including email, newsletters, client reviews and special occasion communication. They also spend more time in front of clients. And it pays off. Those firms that spent more than 60% of their time in front of clients were eight times more profitable compared to those firms that spent 30% or less communicating to clients. Duplicating Top Firms’ Success To achieve proactive and effective communication, advisors can take these pages from top advisors’ playbooks: Not all clients have the same communication preferences. While younger clients may prefer e-communication, older clients may prefer more traditional phone and in-person contact. But don’t make assumptions—ask them. In addition to remaining sensitive to your clients’ ways to communicate, stay on top of these preferences so you’ll know if they change. Devote more time to your clients. No matter the news, it’s essential that advisory firms be proactive about their communication with clients. Consider that more high-touch communication (face-to-face and phone calls, for instance) are more effective during times of stress. Lessen the reliance on email unless it’s preferred by clients. Set aside time each day to connect with clients. Don’t underestimate technology—an effective CRM system is an important tool in your client relationship. Most Important Communication Practices: Top Firms vs. All Firms 2. Referrals Market performance was not the only factor responsible for growth in advisor assets in 2009. New clients also resulted in increased assets. There has been a significant shift in how advisors gained new clients—overall, all firms were much more proactive in seeking active referrals from clients, with the average firm doubling the percentage of clients gained from actively seeking referrals to 21% in 2009 from just 12% in 2008. Top firms were even more aggressive in seeking new clients—42% of their clients originated from active referrals. In contrast, the percentage of new clients coming from passive referrals—the most common source of new clients in the past—was 10% for average firms compared to 18% for top firms. The ability for top firms to fortify their client base through aggressive and proactive referrals played a major role in their growth and underscores the importance to all firms of seeking clients through active referrals. Percentage of Clients Attributed to Different Marketing Methods: Top Firms vs. All Firms Duplicating Top Firms’ Success To better utilize active referrals as a means of growth, advisors can follow these best practices of top firms:  Don’t take a passive approach in cultivating referrals—make asking for referrals part of your routine communication with clients.  It’s especially important with those clients who fit your “ideal client” profile since they can refer you to prospects with similar characteristics. Implement a referral program. Have a simple but systematical way to ask for referrals. According to a 2007 Schwab’s study, 90% of the clients of independent RIAs would recommend their advisor to a friend or family member. Make sure to tap this potential for growth. While developing your referral network, consider not just existing clients but also your friends and other financial professionals such as accountants and attorneys.

Register to view the full article

Sign up for a FREE membership to – the leading provider of insights and intelligence for investment advisors

Hide comments


  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.