Client engagement strategies, growth and retention in the down markets


Gabriel Garcia
Managing Director, RIA Client Experience, Business Development and Strategy

The path to growth for financial advisory firms is multifaceted. It requires a keen understanding of the shifting demographic landscape, a balanced focus on client acquisition and retention, and a commitment to leveraging technology and innovation. Additionally, preparing for future challenges, such as the changing advisor workforce, is crucial.

Gabriel Garcia, Head of RIA Client Experience, Business Development and Strategy at SEI, is part of the team sponsoring critical research and insights in the InvestmentNews Advisor Benchmarking Study. The Benchmarking Study offers financial advisors comprehensive practice management studies and benchmarking reports, presenting invaluable insights into industry trends and performance metrics.

Garcia highlights, “The top three things clients are looking for is peace of mind, goal attainment and life fulfilment. Communication strategies and ensuring there’s a plan to meeting those expectations is critical. The elixir to all of this is growth, right?”

The study revealed in 2023 an average growth of 8% in client relationships among advisory firms. Garcia however points to the misleading nature of such a figure, noting, “The detailed data reveals that individual advisors within these firms are on average acquiring approximately 0.62 clients per month, which translates to a little over 7 clients per year. While at an aggregate level, this might contribute to a significant percentage growth for the firm, these averages and medians can be somewhat misleading. From a performance standpoint, an acquisition rate of 0.62 clients per month could be considered suboptimal.

“Improving this rate from 0.62 to one client per month represents a 40% increase. While this might initially seem like a daunting task, it is quite achievable with the right strategies.”

Key to this growth is diversifying client acquisition methods beyond traditional reliance on referrals. While referrals have historically been a primary source of new clients, expanding marketing initiatives and exploring new avenues for client engagement can significantly widen the pool of potential clients.

By broadening their outreach, advisors can effectively increase their client base, thereby enhancing the overall growth and vitality of their practice.

Navigating demographic shifts

The industry, traditionally reliant on baby boomer clientele, is now at a pivotal point. As boomers transition from wealth accumulation to wealth distribution, advisory firms must pivot their focus to younger generations – Gen X, Millennials, and the emerging Gen Z. Firms should focus on directly engaging with younger demographics, as independent clients. This approach is a more strategic initiative for becoming the preferred advisor of these upcoming generations, rather than solely relying on their connection to current clients’ children.

Garcia says, “Firms must intentionally diversify their relevance to different demographics. Expectations surrounding the wealth transfer from baby boomers may not materialize as anticipated, due to their increased longevity and shift from accumulating to spending their wealth.

“This wealth transition, involving the children of current clients, presents a challenge. Statistics reveal that 90% of inheritors don’t retain their parents’ advisors. Consequently, it’s debatable whether aiming to become the children’s advisor in anticipation of a $70 trillion wealth transfer is practical.”

The road ahead

The perception of financial advisors is often limited to their investment expertise, but their role encompasses much more, especially in guiding clients towards achieving their goals and staying on track with their financial plans. The primary focus for advisors should be on these aspects, as they are directly controllable, unlike external market forces.

Garcia says, “Tying it back to the top three things investors look for – should be at the forefront of an advisor’s value proposition. Behavioral science suggests that people tend to underperform financially when left to manage their investments independently, due to emotional decision-making. Therefore, the emotional value advisors bring by helping clients navigate through turbulent times is of paramount importance.”

The trend towards hiring more staff in service support and operational roles, particularly evident among top-performing firms, is a strategy to manage increased client loads effectively. These top firms are handling 40 to 50% more clients than their peers, indicating a high level of efficiency and client engagement. However, reaching a point of maximum elasticity in terms of client management capacity indicates the need for these firms to consider expanding their teams to sustain growth and service quality. The major barrier to further growth is this capacity limitation, emphasizing the need for strategic hiring to create additional bandwidth for client management and acquisition.

In flourishing markets, AUM typically experiences robust growth, whereas in downturns, there are declines. In 2022, the average financial advisory firm in the study experienced a net decline of 7.4% in its AUM. The 7.4% drop in AUM, although notable, isn’t particularly alarming, according to Garcia, considering these market conditions. Positively, firms have been attracting new clients and increasing their share of wallet from existing clients, which somewhat offsets the AUM decline’s impact on revenues.

However, Garcia notes, the decline in AUM does present a potential future concern. Notably, there’s a shift in where new clients are originating, with 37% now coming from other independent advisory relationships, a significant increase from the historical norm. This trend suggests a possible rise in attrition rates, which could become a considerable challenge for the business, moving beyond mere market navigation to strategic business management.

While new client acquisition is crucial, retaining existing clients is equally important. The data shows that a significant portion of new clients are switching from other advisory firms, indicating a competitive landscape where client loyalty can no longer be taken for granted.

“This challenging time is where firms need to think about their marketing, their branding and their presence in their community. When the turbulent markets calm down and we re-enter into the upward market trends there will then be an availability of new investors. Clients who may have terminated their advisor or who rode out the tough period and were dissatisfied because their advisors weren’t implementing the key engagement strategies and being goals based,” says Garcia.

Information provided by Independent Advisor Solutions by SEI, a strategic business unit of SEI Investments Company (SEI).


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