As the pace of consolidation across the wealth management industry continues to set new records while creating scaled-up mega-advisory firms, it is easy to overlook and underestimate the importance of good old-fashioned organic growth.
Most advisory firms enjoy some level of organic growth, which is defined as new assets from new clients that didn’t come via a merger or acquisition, or from an adviser joining the firm. But for some firms, particularly those not in a position to grow through acquisitions, organic growth is the only way up.
“If you’re not doing M&A, then this business is a contact sport and you gotta be out there,” said Karl Wagner, partner and senior wealth adviser at Biondo Investment Advisors, a $700 million firm.
Biondo, which has a history dating to 1962, has been an independent advisory firm since 2003 and has never made an acquisition.
“We’ve discussed acquisitions, and we’ve had people approach us, but we prefer to do it the old-fashioned way,” Wagner said.
At Biondo, organic growth is accomplished via a multipronged approach.
“We take good care of the clients we have, and we ask them for referrals,” Wagner said. “We’ve done a good job with centers of influence and working with marketing and PR firms, and using social media. And I’ve hired clients who have been talented people from other industries.”
Advisers like Wagner often describe organic growth as a “slow drip” that doesn’t generate the kind of fireworks a multibillion-dollar merger does. But the quieter pace of organic growth, which does not include investment performance, is no small thing.
According to data compiled by the InvestmentNews annual Adviser Benchmarking Study, over the past three years organic growth has represented on average 41.5% of RIA asset growth.
Of that organic growth, 67.8% was attributed to referrals while 32.5% was attributed to all other forms of business development, including marketing, promotions, digital communications and networking.
Ken Van Leeuwen, founder of Van Leeuwen & Co., said that at his $300 million advisory firm, “organic growth is the priority.”
“Organic growth is asking for referrals, reaching out to people in these difficult times and talking to them about their portfolios,” he said.
Van Leeuwen’s firm has never made an acquisition, and he isn’t rattled by the way giant RIA consolidators are buying up market share.
“It’s not hard to compete with the aggregators because this is a customer relationship business,” he said. “For long-lasting, deep relationships, the personal service and concern will still be the best strategy. My sense is the buyers are just about amassing scale and building a mass market money management model. I don’t know how the client is necessarily benefiting from all that scale.”
Bob Oros, chief executive at Hightower, an aggressive buyer with $132 billion under advisement, might take issue with the scale for scale’s sake argument.
“Organic growth is the bellwether of how we’re doing.”
Matt Regan, president, Wealthcare
While organic growth is measured in a variety of ways, Oros cites an industry average of about 4.5%, and he said Hightower’s organic growth in 2021 of 9% was “easily twice the industry average.”
“Our top quartile of advisers grew organic growth by north of 20% as a group,” he added.
When making acquisitions, Oros said a record of consistent organic growth is among the top considerations.
“If there isn’t consistent organic growth, there’s no deal,” he said. “One consistent attribute that goes too often overlooked is having a formal sales pipeline process. It’s a key leading indicator of who is likely to grow organically.”
Matt Regan, president of Wealthcare, a $5 billion RIA platform affiliated with 170 advisers, has been tracking organic growth rates for about four years.
“Organic growth is the bellwether of how we’re doing, and our advisers are growing three to four times the industry average,” he said. “The last four years we’ve been between 16% and 18% growth, net of market performance.”
Wealthcare only recently entered the M&A space, making two acquisitions in the last six months.
Regan said even as an acquirer, he’s not discounting the importance of organic growth.
“We use digital marketing, email marketing, and we help advisers execute marketing plans,” he said. “But I’m skeptical that there’s a magic formula for finding new clients.”
While organic growth has always been a major component of financial advisory firms, marketing experts say the game is changing with increased competition, which places more emphasis on specific strategies for attracting new clients.
“The ability to grow inorganically will continue, but it comes at a high price these days,” said Megan Carpenter, founder and chief executive of FiComm Partners.
Carpenter often sees a disconnect between how some firms talk about a focus on organic growth and actually deliver that growth.
“One of the things I learned is that all the large national firms say they help advisers drive organic growth, but when asked, they say they do it through custodial referral partnerships, through established centers of influence, and that they have programs to work with executives,” she said. “All the executives are saying they help drive growth, but it’s very traditional. There’s nothing new about it. There’s a huge opportunity to drive organic growth through a digital perspective.”
Carpenter said those digital marketing strategies include managing “how you show up online,” evaluating the website message to make it clear and simple, and staying active on social media platforms.
April Rudin, founder and president of The Rudin Group, said too many advisers miss out on organic growth opportunities by half-stepping their marketing efforts.
“It’s one of those things you don’t want to DIY,” she said. “Set a budget for branding, work on messaging, and think about how you appear to clients and centers of influence.”
Considering that many advisers have cut back on travel over the past few years, Rudin said “people should have a pent-up budget they can allocate toward marketing.”
She added that marketing efforts need to be ongoing and proactive, because “we don’t know when somebody is looking for a new adviser.”
And in terms of allocating the marketing budget, Rudin said up to 80% of resources should be used to cultivate relationships with centers of influence.
“They return multiples of referrals, and it’s a professional referral so that carries a lot of weight,” she said. “Most advisers say they have these relationships with centers of influence, but don’t spend time cultivating them.”
Vance Barse, founder of Your Dedicated Fiduciary, might not be ramping up a big marketing budget, but he has seen about 30% organic growth over the past year by taking advantage of the ability to meet in person after two years of restrictions and lockdowns.
“I’m back to doing business the old-fashioned way with lots of in-person meetings and going to industry events,” he said. “All you hear about is larger firms acquiring smaller firms, and it seems like people have forgotten about the fundamental purpose of organic growth. Largely, the families that have come on board have done so either because they haven’t heard from their adviser in some time or they haven’t been made aware of strategies for times like these, such as tax-loss harvesting and strategic adjustments to portfolios.”
As techniques and technologies for recruiting new business evolve, it still comes down to being willing to hustle.
“We have grown organically through a big commitment to content marketing and inbound marketing,” said Eric Roberge, owner of Beyond Your Hammock.
“We get about 45% of all our new clients through organic and local [search engine optimization], thanks to our blog, podcasts and optimized Google My Business profile,” he added.
At Ulin & Co. Wealth Management, founder Jon Ulin attributes his 25% annual organic growth rate to “next- generation planning and social media,” even through the pandemic. “In addition to referrals, we have had a significant uptick in our clients’ children, now in their 50s and 60s, hiring us alongside their aging parents and continuing our relationship upon the loss of a parent leading to an inheritance,” he added. “Clearly communicating your brand while having a great website and social media presence is key to grow and to survive in today’s new world and work environment, where most of our meetings are virtual.”
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