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(L-R): Joe Anthony, Angela Giombetti, Linda Cook and Alli Warner discuss growth opportunities.

RIAs Are Dropping the Ball on Marketing and Referrals

A decade-long market of ever-rising asset prices has led many to overlook the need to formalize business development. In a more-challenging growth environment, as much as 5% of revenue should be spent on marketing and sales, according to speakers at DeVoe & Co.’s annual conference.

More than half of new RIA clients are gained through client referrals—yet only 12% of advisors actively pursue that channel of business growth, according to data presented last week at Devoe & Company’s annual Elevate conference.

Among firms that have business development programs in place, approximately one out of every three clients come to an advisor through marketing and sales, according to the DeVoe data, while "center-of-influence" referrals from other client service providers, like accountants or attorneys, account for 17%.

Many RIAs don't have structured business development processes, instead relying on the past decade's bull market and ever-higher asset prices, as well as more casual in-bound requests from prospects. 

Organic growth rates have dropped by 50% since 2017, according to David DeVoe, founder of the boutique consultancy and investment bank. Spending on marketing and business development decreased by the same percentage over that time frame.

“What are we doing? We’re cutting our growth budgets in half and now we're seeing the implications of that,” he said. 

Firms should spend at least 2% of gross revenue on marketing and sales activities, according to DeVoe Special Advisor Tim Kochis, former CEO of Aspiriant, a Los Angeles–based RIA overseeing some $13 billion in assets today.

“Most other industries spend a great deal more than 5%,” he said. “The RIA industry has been fortunate that we have had the market growing a lot of our revenue over time, and it's caused us to become complacent.”

According to Deloitte’s annual CMO survey across all industries, marketing is expected to comprise 13.6% of company budgets in 2023, down from 13.8% in 2022. Transportation and manufacturing will devote the least, with 1% and 7.3%, respectively. The consumer packaged goods industry is spending more than a quarter of revenues (26.7%), followed by the pharmaceutical and biotech industries at 16.6%.

Banking, finance, insurance and real estate are expected to collectively invest around 8% of revenues.

In that context, RIA marketing budgets seem meager. While targeting 2% of gross revenue may sound like a lot of money for a small business, Kochis encouraged advisors to look at the return. Even adding in the cost of human capital, which Schwab estimates is around $3,000 per every $1 million in acquired AUM, Kochis said the long-term benefit is exponentially greater.

“Close to $1 million of (new) AUM might cost the firm about $4,000,” he said. “If your revenue per $1 million is $8,000 at 80 basis points with a 25% margin, that's $2,000 a year. What's the life expectancy of a client—25, 30, 40 years? I don’t care what big discount rate you use, the present value of that $2,000 a year is at least 10 times the $4,000 it costs to acquire that client.”

When asked by a conference attendee where to find good marketing talent, Kochis said advisors might consider poaching from other firms.

“Our industry is unusual in that we have a cooperative mentality. We don’t steal staff from each other very much,” he said. “This may be one area where you want to recruit from other firms in this space who have someone like that.”

According to Catherine Williams, head of practice management for Dimensional Fund Advisors, top performing firms—those that score in the top quartile across revenue growth, client retention, employee retention, profit margin and revenue per advisor—actually spend slightly less on marketing activities as a percentage of revenue than lower performing teams, though likely more on a dollar-basis and excluding any compensation spent on dedicated marketing employees. 

“They tend to be at around 2% to 3% of revenue, which can still be a meaningful number if you’re a bigger firm,” she told “And as firms get bigger, they do tend to start applying human capital to that marketing and branding endeavor, in the form of a marketing associate or a chief marketing officer when they get big enough. It runs the gamut, but the high performing firms are kind of hanging out in that 2% to 5% range.

“They're spending dollars, no doubt about that,” she said.

“A good plan executed violently today is better than the perfect plan next week,” said Angela Giombetti, head of marketing for Wealthspire Advisors, paraphrasing Gen. George Patton. “And then you have to measure the results. You can’t just spray and pray; you must be intentional about the efforts that you're putting out there and measure that ROI and then be flexible.”

Giombetti was part of an all-female panel of marketing executives from some of the industry’s fastest-growing firms, along with Beacon Pointe Chief Marketing Officer Allison Warner and Linda Cook, founder, advisor and head of marketing at Gilbert & Cook.

For smaller firms without a dedicated marketing team, Cook recommended outsourcing the role. Warner agreed that’s an option but cautioned that it’s important to find a third-party firm that will truly customize the approach rather than relying on templates that can dilute messaging.

“High performing firms in our study not only have an incredibly clear value prop, which informs all of their marketing and branding and even the client experience,” said Williams. “They are also far more likely to account for the values and behaviors of their clients, in addition to demographics, size of assets, age, professions and those more general things.”

While 97% of firms say that they seek client referrals, according to DeVoe’s data, some 88% of employed advisors aren’t following through and don’t ask for them.

“You need to impart this knowledge that is intuitive to so many of us founders and start to coach the employees on how they do this,” said DeVoe.

“Training to ask for referrals in a manner that is organic is something I think our industry has not done very well,” said Beacon Pointe’s Warner. “Regardless of your firm’s size, there is a lot of opportunity in helping your younger advisors create that growth path through relationship expansion and conversations to foster organic business referrals.”

There were also discussions around referral agreements with CPA firms—generally quid pro quo relationships, but helped by formalized arrangements with the advisor’s ongoing value to the CPA spelled out—and lead referral services—seen as expensive but worthwhile if a firm has a process in place to handle the inbound names.

“You have to have a diversified approach to marketing. It’s like having a diversified portfolio,” said Jim Cahn, chief of investments and business development for $67 billion AUM Wealth Enhancement Group.

In addition to spending millions on market efforts each year, WEG uses the custodian referral programs from Schwab and Fidelity, he said.

“That’s a growing channel, but it’s an expensive channel that we’re paying an ongoing fee for, so it’s not as profitable,” Cahn said. Custodial referral programs usually levy a small ongoing fee for each client brought in through the channel.

Unsurprisingly, the topic of artificial intelligence and machine learning came up over the course of the week—including how it can be deployed to simplify and deepen the referral and lead-gen processes.

Catchlight, an AI-supported lead assessment tool launched by Fidelity Labs, allows advisors to determine which prospects—whether homegrown or externally sourced—are most likely to sign on as clients, letting firms focus their efforts on the most likely prospects. The technology goes beyond demographics, profession and assets, to uncover hobbies, goals and other personal data points so advisors can create more tailored pitches.   

The platform is trained on more than 100,000 client/advisor conversions and has aggregated 2.5 billion data points, according to the firm. 

“We're looking at it for the client referrals, but what about the professional referrals,” said Tina Hohman of Alera Group. “Catchlight can go in and look at the data and help us understand who might be somebody that's good to refer.

“I definitely think AI is starting to play a bigger role in our business that we need to understand,” she said.

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