Fast-Growing Firms Do These Things Well: Study

What You Need to Know

Many RIAs are focused on moving upmarket, but a new survey warns that might be a mistake.
Serving wealthier clients requires a thoughtful service model and allocating the right amount of time to client service.
Firms may do better by focusing on marketing and winning clients who will generate and inherit future wealth.

The findings of a new survey published by the advisory firm True Ensemble in partnership with BlackRock suggest that chasing ever-bigger clients may be a mistake that can hurt RIA growth.

The warning cuts against the strategic priorities espoused by many growth-oriented firms that see winning and serving wealthier clients as a reliable strategy for boosting assets. Without creating a thoughtful service model and investing the necessary resources, however, this approach can hurt a firm’s ability to attract new generations of wealth.

Likewise, overrelying on clients’ ad hoc referrals rather than a comprehensive referral plan can limit organic growth opportunities, the authors warn. In particular, overreliance on one lead source tends to result in slower growth compared with having diverse and evolving referral sources.

Beyond diagnosing these growth-sapping issues, the study also identifies a number of core strategies that can help firms achieve their growth objectives — starting with investing more time and money in marketing.

Additionally, advisors might consider working with clients that are on the lower end of their target client range relative to assets under management, according to the study. Doing so can help a firm get ahead of such trends as the great wealth transfer — not to mention that there is a tremendous unmet need for advisory services in the mass affluent market.

Finally, networking is still working “quite well” but works even better when combined with effective marketing.

The Growth Picture

The study authors examine the distribution of growth in the advisor industry as measured by net new assets from new clients. In doing so, they show that 51% of all firms grew by less than 5% in the past year, but there was a strong cadre of firms that grew much faster.

This includes some 21% of firms that grew at a rate of 11% or higher.

“In other words, the average new AUM from new clients was a satisfying 8.3%,” the authors explain, “but 73% of firms had a growth rate below 9%.”

Additional data points show that advisory firms grew their revenue by an average of 11.4% and their AUM by 18.2% during 2023, even as the number of households serviced increased by 8.6%.

“All three measures of growth point to a year of opportunity and success,” the authors state. “However, the way in which the industry measures growth can be confusing and often disguises what we are attempting to measure.”

Market appreciation, for example, has been a big part of the growth story. Additionally, both existing client AUM contributions and distributions in 2023 appear to be significantly larger than the researchers have previously seen.

“In our consultancy experience, contributions have ranged from 3.0% to 4.0% per year for the last 10 years and distributions have ranged from 1.5% to 3.0% per year,” the authors note.

Driving Leads to Drive Gains

The advisor industry appears to convert more than half of its leads into clients, the report suggests, with the typical firm generating a median of 66 new leads yearly and converting 34 into clients.

“Leads are a primary source of growth — the product of a firm’s marketing and other reputation-building efforts, including networking, strategic alliances and exceptional work with existing clients,” the authors find.

Leads are a “precious resource,” they emphasize, yet only 62% of all firms track the leads they generate.

“Firms that don’t track this metric may not know if their number of leads is rising or falling over time,” the authors point out.

Referrals from existing clients have a 4.4% higher probability of success compared to other types of leads when it comes to closing clients, according to the report. Referrals from centers of influence, such as accountants and attorneys, also contribute significantly to growth, representing 15% of all leads.

Networking by the firm’s advisors brings 12.1%, and marketing brings 9.5%. In this context, a marketing lead is one that cannot be traced back to a specific advisor, center of influence or existing client.

Finally, while leads from custodian referrals appear to be a marginal source (at 2.7% of the overall study results), they are often the primary or secondary contributor to the growth of RIAs who participate in custodian referral programs.

Ultimately, the authors emphasize, all sources of leads are important.

“Firms should focus their strategic initiatives in areas where they can drive sustainable growth and may want to deploy initiatives in multiple directions, provided they have sufficient resources to track and follow up on the opportunities generated,” the report recommends.