This is the 10th installment in a Financial Planning series by Chief Correspondent Tobias Salinger on how to build a successful RIA. See the previous stories here, or find them by following Salinger on LinkedIn.
The fact that the record-breaking growth of registered investment advisory firms roughly tracks the simple asset appreciation in U.S. capital markets reveals why organic growth is so valuable.
Despite the constant stream of industry announcements touting M&A deals and the rapid expansion of the RIA aggregators and other wealth management acquirers, experts frequently point out that the ability to attract new clients and add to existing customer relationships drives much more scalable, enduring growth than those “inorganic” methods. That’s why client referrals of friends and family and, more generally, any form of client lead generation is big business in wealth management. In fact, some advisors and executives view that aspect of the equation as missing at some of the biggest and, yes, fastest-enlarging firms in the industry.
READ MORE: Crafting the right message to win new clients starts by looking inside
Leads equal growth
But so-called lead gen often proves tricky to financial advisors. Despite indications that referrals may now be less common or important to incoming clients, the price of some leads is rising and technology is creating more sources of potential customers. Advisors could expect to pay from $50 to $1,500 per lead, or upwards of $5,000 to buy a meeting with a prospective client, according to John Wernz, a partner and strategic advisor to Santa Barbara, California-based Mission Wealth and the executive-in-residence for private equity firm Great Hill Partners.
“Referrals are still wonderful and should be your first line of getting clients. That said, it is slowly shrinking, and if you’re focused on long-term growth, it’s time to find other avenues,” Wernz said, noting the rise of online testimonials, especially in the years after a 2021 Securities and Exchange Commission rule legalized advisors’ use of them in marketing. “Consumer behavior is shifting,” Wernz added. “Referrals will never go away, but they will likely continue to shrink.”
External sources of leads range from the often-coveted yet expensive referrals from the RIA networks operated by Charles Schwab and Fidelity Investments to more recent entrants, such as SmartAsset, that are focused on matching prospective clients with possible advisors.
However, advisors who “aren’t doing some of the things that are right to grow their book of business” risk becoming “dependent” on them, and they’re not as profitable as internal referrals or other forms of organic expansion, according to Mike Byrnes, whose firm Byrnes Consulting focuses on advisory practice growth. “They should make it part of their growth mix, but it shouldn’t be their end-all, be-all,” he said. “It shouldn’t be the one source of new leads.”
READ MORE: What’s wrong with the big RIA model, straight from advisors’ mouths
Growth or just stock gains?
In that regard, some RIA metrics look different in the context of asset appreciation. Wealth management will always display some degree of correlation with stock prices — client investment portfolios, of course, include a lot of publicly traded shares.
In 2024, the assets under management at SEC-registered RIAs jumped 12.6% to a new high of $144.6 trillion, but large U.S. stocks’ values soared by 25%, according to the latest yearly “Investment Adviser Industry Snapshot” by the Investment Adviser Association, a trade group, and COMPLY, a compliance firm. On an annualized basis since 2000, their AUM has increased at roughly the same rate as big U.S. stocks, at 8.5%.
“The growth in the number of SEC-registered advisers has been generally consistent with economic growth as measured by [gross domestic product],” the report said. “Growth in assets under management has been broadly driven by market returns.”
With that backdrop, advisors may benefit from thinking of leads as simply one out of three components of their marketing structure, said Wernz. He was previously chief marketing and growth officer for 13 years at Wealth Enhancement, a private equity-backed RIA aggregator whose website notes it has “more leads than advisors” and a team of more than 90 growth specialists working with more than 350 CFPs and 150 advisory offices. The company has secured as many M&A deals as any of the largest aggregators in recent years, but it also participates in the Schwab and Fidelity networks and invests in leads all over the country.
For firms seeking to grow even on a much smaller scale, the temptation of new business from leads may distract RIAs from the essential steps to take in advance, such as building a website with a differentiated brand and boosting their social media presence, Wernz said. Furthermore, with more lead gen tools to choose from today, advisors should know that they could be getting a lead that is sold to several firms that will be competing for that single possible client or a potential customer whose goals may not fit with an RIA’s core menu of services, he pointed out.
“There is a significant mix of quantity and quality. I have a little bit of a contrarian viewpoint: Often more expensive and more qualified leads are the best places to start, because they require less of an infrastructure to make them become clients,” Wernz said. “Cheaper is not always better.”
READ MORE: A guide to navigating the organic growth jungle
Get back to the basics
Other forms of outreach could drive additional prospects to an RIA as well, according to Byrnes.
Advisors should know that a social post need not reach 100,000 views in order to be effective. If a single prospect sees it and thereby discovers an advisor who can help them, it’s a successful post, he noted. Furthermore, some advisors neglect alliances with certified public accountants or other professionals known as centers of influence or simply “give out more leads than they get back” from them, Byrnes said.
Overall, advisors sometimes struggle with honing their marketing approach to a target base of customers.
“They’re really generic in what they put out,” Byrnes said. “They’re blasting out the same things that everyone else would blast out, so they’re not driving leads through their organic marketing efforts.”
