Here's a storyboard you'll love: Investor checks out financial advisor online and likes what he sees. Investor contacts financial advisor. Investor hires financial advisor.
It's the ultimate referral engine, marking a reversal in the way investors and financial advisors historically connect. Instead of the advisor reaching out to the prospective client, it's the other way around. As Nicholas Stuller, president and CEO of AdviceIQ, puts it: "People find their roofer online, their spouse, their favorite Chinese restaurant. But their financial advisor?"
Lead generation services aren't new but technology has elevated the exercise to another level—generating consumer traffic in ways that would have been unthinkable just a few years ago. Most of the services—like AdviceIQ, BrightScope, My New Financial Advisor, Paladin Registry and Vestorly—are Internet-based advisor rating services or outright matchmakers. But not all.
Boulevard R in a different twist offers a Web-based marketing platform to advisors that automatically engages prospects, qualifies them and sets up a first meeting. And Advizent, a new venture from industry veterans Charles Goldman and Steve Lockshin, is in the process of creating an elite third-party seal of approval for independent advisory firms that join its cooperative. As of late last year, 145 firms with $151 billion in assets had signed up as provisional members of the start-up. Advizent hopes to be in the marketplace and presenting its story to consumers by the end of March.
"We believe we can, over time, generate referrals—many thousands, hopefully, a year," says Goldman, the former head of Schwab Advisor Services. Statistics suggest Goldman may be right. According to Advizent, five million affluent investors currently use social media to research their financial decisions. Almost three-quarters are on LinkedIn and more than half follow discussion boards. Just over one-quarter use Facebook and Twitter.
"The numbers indicate there's real opportunity to communicate with these folks," adds Goldman. "It's the question all the different models out there are trying to figure out. Everybody is making the same bet at the end of the day that they are able to communicate with investors."
Michael Kitces, publisher of The Kitces Report and director of research at Pinnacle Advisory Group in Columbia, Md., has blogged extensively about the new line-up in the lead generation space. "The reality is the model of creating leads and passing them on to advisors has existed for as long as we've had financial services. But technology has created new pathways," he notes. "There's a lot more opportunity to create some scale by doing it in this environment because we can reach a whole lot more people. Certainly, you see a shift in that direction. It's a really efficient platform."
What's driving the trend? Two things, according to Kitces.
"The fundamental issue is advisors want to grow their business but they have no idea how to get to prospective clients," he says. "Advisors are overwhelmingly horrible marketers." And while piles of industry reports say referrals from clients and centers of influence are responsible for most new business, Kitces observes that it is "very unclear whether those referrals are due to best practices or because advisors are horrible at every other form of marketing and referrals are the only thing left."
Shopping for Advice
What makes the current crop of third-party firms so interesting is that the starting point of the engagement isn't the advisor but the consumer.
"The consumer is looking for someone to stand up for them. They are looking for a trusted brand," says Goldman. "We will market to that consumer."
The firms are deploying a range of strategies to reach the consumer. And the space is new enough that there is a lot of variability in the pricing structure. Pricing—the cost to the advisor—is pretty much all over the map.
Paladin Registry, which launched in 2004, is the elder statesman of the group. The online directory represents 1,200 fiduciary advisors who have been screened for ethics, business practices, services and credentials. As for the consumer, 40% who visit Paladin are using the Internet to find their first advisor. The other 60% are looking to replace an advisor. On average, clients have $400,000 in available assets for investment, according to Jack Waymire, the registry's founder.
To draw the consumer in, Paladin markets its advisor rating service on various websites including its own InvestorWatchdog.com. It also uses social media and search engine optimization to generate traffic. Waymire says investors who visit the registry like it because they can research an advisor while maintaining their anonymity.
The registry has a month-to-month contract with advisors, typically charging from $175 to $275 per month. Only 800 advisors in the registry are signed up to receive for referrals. (In a case where there are two partners, just one pays for the higher cost membership associated with referrals—then the two split referrals as they come in.) The site produces 1,200 qualified referrals a month. One of Paladin's weaknesses historically is that the bulk of its advisors are located in the top 25 metro areas. At the moment, Paladin is trying to make inroads in smaller cities like Anchorage, Omaha and Albuquerque.
Waymire doesn't think third-party prospecting will go mainstream but that it will continue to capture the attention of advisors who are comfortable with Internet marketing and like it for its sort of passive appeal. "Most of the traditional forms of referral-based marketing are relatively expensive and time-consuming," he adds. "This way you don't have to do direct marketing, join the clubs or meet with CPAs. You can just do what you do best: working with your clients." 
