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Mastering the Mad Scramble for New Clients

Mastering the Mad Scramble for New Clients

The hottest trend in wealth management this year will be business development. This is unfortunate, because a lot of wealth management firms are terrible at developing business.

It will be tough this year to squeeze more revenue from existing assets, so firms are instead pinning their growth hopes on client acquisition. Forty six percent advisors said they hope to add at least 16 new clients in 2012, according to a survey by the account aggregation firmByallaccounts.

“That’s a very steep goal,” said John Hill, chief executive of Pinnacle Advisory Group, a Columbia, Md.-based wealth manager with $1 billion in assets under management. “The typical target is approximately eight to 10 percent a year. These numbers suggest a 50 percent increase in the target for firms with $100 to $150 million in assets, assuming the account size of new clients is averaging one million dollars.”

Why the mad scramble? Wealth managers are being squeezed between rising expenses and flat growth in management fees that are still not back to pre-2008 levels, says Hill. “They need to focus more on client acquisition to boost their revenues, and to do that they need to pay more attention to business development,” he said.

But many firms lack the tools and abilities to meet that target: Nearly one-third of the 208 advisors surveyed last fall said they didn’t have enough time to spend on business development; 25 percent said they lacked sufficient expertise and 22 percent said they didn’t have enough money.

Advisors claimed they were devoting at least 15 percent of their time to business development, but Hill suspects that figure is more aspiration than reality. “Many wealth managers just have too much to do and are completely overwhelmed,” he said. “But to grow their business, we think they need to spend at least 20 percent of their time on business development.”

New Clients Will Be Harder To Find

To make things worse, high-net-worth individuals (those with at least $2.5 million in investable assets) are less willing to give their money to wealth managers this year, according to the 2012 Futurewealth Report issued last week by Scorpio Partnership, SEI and Standard Chartered Private Bank, as their confidence in the markets over the next twelve months is ten percentage points lower than it was last year, according to the survey.

“The good news for wealth managers is that they have in the past been able to meet the very high expectations of high-net-worth clients and beat them,” said Catherine Dovey, author of the report and a Scorpio partner. “But it will be very difficult to achieve those goals this year.”

What to Do?

For starters, don’t sell investment performance during a time of lowered expectations, said Jim Morris, senior vice president of SEI’s Global Wealth Services division.

“Wealth managers should focus on a goal-driven sale, based on a holistic assessment of the client’s objectives,” Morris said. “Make sure there are clarity around those goals and that you have a relationship-based business model, not one that’s just passed on performance. That will be a differentiating factor.”

Wealth managers should also consider hiring more sales-oriented staff that has expertise in a wide-range of topics, Morris added. “We’re seeing more firms put money into the front office and client relationships, and adding people with sales skills who also have expertise in areas like financial planning, so they can deliver quality.”

Even if wealth managers are budget-constrained, they should think about borrowing money to invest in sales and client acquisition, said Peter McGratty, vice president of business development for Pinnacle Advisor Solutions.

“It’s daunting, because many firms are operating at full capacity and they’re reluctant to make the leap because it’s money out of their pocket,” McGratty said. “But making the leap will enable them to succeed.”

Too many wealth managers without sales experience think they can do it themselves, added Hill. “We see a lot of that,” he said. “They thought managing a portfolio was the hard part and the sales part was easy – until they had to do it.”

Other business development options for wealth managers include enhancing the firm’s web site and marketing strategy, outsourcing, developing better investment tools and partnering, or even merging, with another firm. Hill and McGratty discussed these options in detail during a recent webinar, “What We Learned from Talking to 100+ Advisors: Industry Trends and Strategies.”

The one thing wealth managers should not do, Hill said, is cut fees.

“Advisors with no business development experience often feel they have to cut their price because they can’t explain the firm’s value proposition,” he said. “But the fee is the value of the service to the client, and if you cut the price you’re diminishing that. In our world, clients generally are not looking for the lowest price, but they are looking for the best service and value they can find.”

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