The RIA’s secret to organic growth

As the inevitable reality of the downside of market cycles seems more likely this year, there's a silver lining for growth-minded RIAs. Market turmoil may be putting money and clients in motion, but it’s also creating opportunities. In order to capitalize on that, firms may want to consider ratcheting up a vastly underutilized lever of organic growth: your investment in marketing. While it may seem counterintuitive to spend more on marketing in a year when AUM — and revenue — may be declining, a holistic mindset can prove to be a very worthwhile investment.

MAKE MARKETING A STRATEGIC INVESTMENT

While many RIAs have enjoyed a robust growth spurt, about half of all organic growth prior to this year came from asset appreciation. Actual client growth for most firms has been far tamer.

In our many years working with RIA owners and advisers, we’ve observed that RIAs consistently underinvest in their organic growth efforts, spending an average of just 1.2% to 1.9% of revenues.

Compounding that underinvestment, many firms include expenses in their marketing budgets that are only tangentially related to marketing. For example, charitable contributions and client dinners have their uses, but these expenses typically don’t do anything to seed organic growth.

One of the impediments to making a larger marketing commitment is that there’s never a perfect correlation between the amount spent to build your brand and demonstrate credibility, and the number of new clients acquired. Thought leadership marketing requires human resources, effort, time and money — and it’s definitely an exercise in delayed gratification.

Say a typical firm with $500 million in AUM gains just one new client per month. Based on successful RIA firms with which we’ve worked, an ideal marketing budget would represent 3% to 4% of firm revenue, or roughly $120,000 — an expense (an investment) that would be covered by revenue from those 12 additional clients in year one.

But considering that the average RIA-client relationship lasts from 15 to 17 years, the long-term return on invested capital can be significant. Spending a significant portion of the first year’s marginal new client revenue on marketing may seem steep at first blush. And of course that 3% to 4% number may just not be realistic for every RIA firm. But this seems a lot more palatable if it can net you a repeating (and likely increasing) revenue stream for the better part of the next two decades.

PUT A MARKETING PLAN INTO ACTION

RIAs who want to make that marketing investment should have a strategic plan. Working through a marketing plan can bring clarity and structure to your approach. There are three key elements to successfully using marketing to grow your business.

Have clear marketing and growth goals. Marketing is how you communicate and deliver value. It can be a significant driver of growth. To better help our clients, we developed a proprietary scorecard that helps advisers determine the best marketing approach, build their marketing infrastructure, and identify their desired outcomes.

Know who you're targeting. Working through a strategic marketing plan helps you clarify your ideal target client, why they're ideal, and the strategies and tactics that can best help you reach those prospective clients. To make sure you know it’s working, choose a few metrics that you think will be an indicator of the success of your marketing efforts.

Lean into your strengths. From social selling to referral marketing to content marketing, there are a range of marketing strategies and tactics at your disposal today. Lead with what works best for your firm. If you have a large network, consider networking and social selling as a way to establish yourself as an expert in your community. And of course, if you need help in areas where you're not as strong, consider hiring professional marketers who can help fill in the gaps, or even run all aspects of your marketing plan for you.

But to make all this work, it helps to have tools and resources that can get you started. It’s one of the reasons we created a dedicated resource — what we call Growth Lab — so independent advisers with whom we work have access to actionable tools. We’ve found that these tools can help overcome inertia and move RIAs toward a more strategic approach to growing their businesses.

Ultimately, RIAs can benefit by viewing marketing not as a line item on a budget, but as a critical investment in their future growth.

Gabriel Garcia is head of RIA client experience, business development and strategy at SEI, and Shauna Mace is head of practice management for SEI’s advisor business.