Success breeds success; if you're successful, clients will find you. That bit of wisdom, which has traditionally held true for the advisory industry, is losing currency as a solitary marketing approach. In the previous century, financial advisors would get licensed, build a book of business, and eventually die. Today, advisors are building business enterprises less dependent on themselves but with far more challenges. One of them is how to create a sustainable process for attracting new clients without relying solely on the dependable "drug" of referrals.
As a practice matures, its advisors tend to rely more on passively generated referrals than on any type of active marketing or sales process to attract new business. According to the 2006 Moss Adams Financial Performance Study of Advisory Firms, 65% of participants' new clients in 2005 came from referrals alone.
Advisors tell us that their new business each year tends to come from a small cadre of clients and professional referral sources. They also tell us that now that they've achieved this critical mass, they have not made as much of an effort to expand their circles. But this is precisely the problem. To paraphrase Frank McNair, author of It's OK to Ask 'Em to Work: And Other Essential Maxims for Smart Managers (Amacom Books, 1999), the seeds of destruction are sown in good times.
McNair suggests that we identify our areas of weakness and surround ourselves with people who will shore them up: "We must press ourselves to grow so that our weaknesses become our competence." The point as it relates to advisors is that if marketing and sales has become the weak link in an otherwise healthy practice, it is critical that practice leaders take inventory of their approach to growing their top line and consider how, why, and with whom you might bring this activity back to health. Obviously, for successful advisors it's not a survival question so much as it is a question of how to maintain sustainable growth.
Being Passive May Not Work
The danger of relying solely on passive referrals is that you ultimately get defined in the market by others. When you come across as too busy to take on new clients or to be able to articulate your value proposition to prospects (and even to your own clients), the competition could eventually consume you. When your marketing muscle has atrophied, you will not have the strength to respond to the growing competitive threats.
We often hear advisors express fear of competition from the big guys who used to be their friends, including their custodians. While these may be the panicked expressions of practitioners who are less secure than they should be, this fear will become a realized threat for advisors who don't begin thinking in business terms about how to differentiate themselves in the market, how to position themselves among their optimal clients and prospects, and how to better leverage their relationships to create new opportunities for their practices.
Another real threat to advisors comes from their existing clients, who too often assume that the advisory practice does not have the capability to meet their evolving needs. According to Coming of Age: Best Practices for Serving Affluent Pre-Retirees and Retirees, a study conducted by The VIP Forum, 18% of pre-retiree respondents said they would listen to proposals from other advisors, and 16% had switched assets to another provider in the preceding 12 months. The most common explanation for the switch was that the clients perceived their advisors could help them in the accumulation phase but not in the distribution phase. How is it possible that the clients you've worked with all these years do not know you can continue to serve them during retirement?
