In an industry with exact figures for metrics like assets, investment gains and revenue, an important marketing barometer called “client acquisition cost” depends on ranges and nuance.
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The price tag for wealth management firms to win a new relationship — the “client acquisition cost,” “customer acquisition cost” or “CAC,” for short — runs between as little as $500 and up to more than $10,000, according to marketing experts. To answer the question of whether a marketing plan built to attract new clients has delivered a worthwhile return on investment, registered investment advisory firms and other wealth management companies must compare the cost of the new client to their lifetime value.
Easier said than done
Calculating whether an RIA is successfully growing organically outside of M&A deals and financial advisor recruiting isn’t quite that simple for most firms, though. Factors like the amount of time an advisor devoted to adding that client, the many different marketing channels available to firms these days from social media, traditional advertising or old-fashioned referrals and whether the company has accurately counted the full expense could affect that number.
Megan Carpenter
And many firms simply haven’t grown to the point that they have the necessary internal infrastructure to arrive at a useful working figure, according to Megan Carpenter, the CEO of wealth management marketing firm Ficomm Partners.
“It’s so specific to the firm and to the channels that they’re investing in,” she said. “I find those benchmarks often to be noise. What’s most important for firms is, identifying what their own baseline client acquisition costs are, going through the exercise to identify that and then having the conversation of, ‘does that work for us?'”
She and Joe Anthony, the CEO of fellow wealth management marketing firm Gregory, point out that firms often forget to include the cost of the time spent by advisors or other staff on the relationship. Another typical error comes from failing to pin down the source of any new business through any kind of client intake form or tracking website statistics that document its role in the so-called marketing funnel of client conversions, Anthony said.
“It may feel tacky, but if you want to be serious about it, you want to make sure that you talk through the form,” he said. “You have to commit to actually keeping score before you really know what your true customer acquisition cost is.”
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Unpacking the price and the hidden costs
The numbers crunched by one such precise scorekeeper, planning entrepreneur and writer Michael Kitces’ Kitces.com and Kitces Research, display why industry-wide figures are difficult to estimate yet quite pivotal to each firm. Between 2017 and 2026, the average organic growth of RIAs slipped to just 3% from 9%, according to a report earlier this year by Kitces Director of Research Mark Tenenbaum and Senior Financial Planning Nerd Sydney Squires. That means incoming relationships are becoming even more valuable, to the point that buyers are paying a premium to acquire RIAs that have shown proficiency in attracting new clients.
On the other hand, since firms become more valuable and advisors earn more as their RIAs or advisory practices expand, their own client acquisition costs are climbing as well. And the costs of advisors’ and other employees’ time comprises 71% of the total, the report found. That’s why firms that generate less than $250,000 in annual revenue have a client acquisition cost of $1,064, while those producing above $5 million are spending $10,408. So firms often wind up at what Tenenbaum and Squires called a “crossroads in their marketing strategies” when they weigh the cost against the incoming revenue.
“The cost of organically acquiring this additional revenue through marketing rises to (and eventually surpasses) that of simply acquiring that revenue inorganically via M&A,” they wrote. “In other words, relying on the time-intensive tactics many advisors used to grow their firms in the first place becomes so costly that it is no longer worth pursuing organic growth! One key implication is that firms whose marketing expenses are less reliant on the cost of advisor time (either because they rely on hard expenditures or because they have delegated marketing work to others whose time is less expensive) should be able to scale their marketing costs more effectively as they grow. Our data suggests this is the case.”
Such findings explain why the segmentation of clients into those driving the most value to the firm over the longest period over a family’s generations is “the heartbeat” of the industry’s advisor recruiting and M&A deals today, according to Trey Prescott, the director of business development with Atlanta-based RIA platform Advisory Services Network. But every advisor faces limits when they try to get the optimal return on their marketing investments.
“It just really gets down to the type of client that you want to serve,” Prescott said. “One thing that we don’t have enough of is time.”
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Finding the bargains
Undercounting the price of advisors’ time and that of other staff is “where most firms go wrong,” according to JT Gill, a digital strategy specialist at FiComm. In addition, they may be neglecting customer referrals, which remain the industry’s No. 1 source of new business, or those coming “centers-of-influence,” who are certified public accountants or other collaborating professionals. Those generally cost less than paid ads or other types of campaigns, and advisors can more frequently convert them than other types of leads.
“The advisors who grow most efficiently build a genuine referral system: a consistent way of asking, a process for staying visible to centers of influence and a client experience that gives people something specific to talk about,” Gill said in an email. “Milestone recognitions, proactive outreach tied to a client’s actual life moments, and well-executed events generate conversation because they give clients a reason to mention you. … When working with advisory firms, the most useful exercise is calculating CAC by channel, not just as a blended figure, but broken out by referral, COI, event, social and paid. That channel-level view is usually where the real insight lives: where to stop spending, and where doubling down pays off.”
And that is the kind of “foundational work that’s required” to turn the client acquisition cost into a meaningful metric for analyzing a firm’s growth, Carpenter said.
Gregory
“It’s an important factor when you’re making decisions as to where to allocate time and resources,” she said. “If you’re building an internal marketing discipline for the first time, there are a lot of key considerations that need to be taken into account before CAC.”
All of the resulting subtlety could alter the equation when firms are thinking about, say, splurging on tickets to a playoff basketball game or the Kentucky Derby, Anthony said. It costs dramatically more, but advisors could be speaking to a prospective client at just the right time before retirement or another important life event. So tens of thousands of dollars up front could add up to hundreds of thousands or millions back over time.
“You may have a higher batting average if you spend quality time with somebody,” Anthony said. “A great marketing plan isn’t a low customer acquisition cost. It’s a good return on the cost.”
