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In their own rights, growth, client segmentation and attracting and retaining talent are marquee issues for advisory firms. When combined and properly executed upon, the sky can be the limit for practices.
On Thursday, Schwab Advisor Services released its 2024 RIA Benchmarking Study, which confirmed the importance of those issues, among others. Growth was abundant for advisory firms last year with the median firm experiencing median assets under management growth of 17.9%, according to Schwab.
That’s nice, but that was attributable to market gains. Smart advisors know that organic growth – assets from new clients -- is the lifeblood of any practice and there right and wrong ways to drive that organic growth. As the Schwab notes, there are some commonalities share by fast-growing firms. Those include the steps those practices take to realize growth, including referral plans, focusing on client feedback and formulating “ideal” client personas, among others.
“Firms that leveraged digital marketing strategies to support new client growth efforts found them successful,” according to the stud. “Firms that tracked results helped ensure effective use of marketing resources. For those that tracked, the median lead conversion rate was 50% in 2023. Firms are using inorganic strategies to fuel growth and meet business needs. More than 40% of firms have pursued inorganic strategies over the past five years, and half of all firms are seeking inorganic growth opportunities in the future. Firms’ top reasons for pursuing inorganic strategies were to increase growth, acquire talent, and create scale.”
Scaling Client Segmentation Crucial Growth Driver
Advisors are already applying some level of segmentation and that’s an important starting point because segmentation isn’t an exclusionary tactic. Rather, it’s a growth driver.
Advisors should realize as much because segmenting clients is like anything else: there’s a right and a wrong day of doing it and that’s crucial at a time when today’s clients are increasingly sophisticated. For advisors that want to improve their segmentation abilities, demographics are a good place to start. Fortunately, that endeavor isn’t centered on clients’ race or wealth.
“Client segmentation is important to long-term sustainability as it can help firms align revenue with cost to serve and support firms in building a scalable business,” observes Schwab. “Segmentation can also be beneficial when pursuing the next generation of clients. Firms can develop relationships today that may have long-term upside as those clients’ wealth grows. Top strategies to pursue the next generation of clients include engaging with clients’ children, creating a diverse team of talent to better reflect young investors, and using educational tools to help build financial literacy.”
Talent Is a Difference-Maker
Client assets are how advisory practices make money, but attracting those folks and building upon those relationships are only possible with the right team in place. That underscores the importance of principles investing in the resources need to attract and retain top talent.
The Schwab studies notes that over the next five years, the median advisory firm will hire four new staffers, but those in the top-performing cohort will add seven new employees over that period. That might not be enough because 70,000 jobs across the industry need to be filled over the next five years. On its face, that sounds daunting, but firms with employee value propositions (EVPs) are positioned to thrive because those are the practices that will lure and keep the best talent.
“An EVP is a set of offerings the firm provides to staff in return for the skills and experiences employees bring to the firm,” notes Schwab.
Sixty percent of the top-performing practices have EVPs. Think about it. The median advisor likely already has a value proposition for clients in place. Why not do the same for employees? It could be a difference-maker over the long-term, potentially taking a practice from good to great.