Financial advisors will have to do a much better job at sales and marketing if they want to build a successful practice. Or at least so says Charles “Chip” Roame, managing partner of Tiburon Strategic Advisors, whose firm recently released a report outlining the nine winning tactics for financial advisors.
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In the second of an occasional series on that report, we spoke with Roame about the second of the nine winning tactics, sales and marketing. The first report examined the first of the nine winning tactics, target marketing.
A4A: Overall, how would you rate the sales and marketing efforts of fee-only and/or fee-based financial advisors?
Roame: Average to poor, with a few terrific exceptions: Fisher Investments, The Edelman Financial Group (Read A4A’s report on Edelman’s firm), The Mutual Fund Store, Hanson McClain, and Clearly Gull.
A4A: In your report, you say that client retention and client consolidation will be the most critical sales and marketing activities for financial advisors? Why so? Are advisors at risk of losing their clients and share of wallet?
Roame: There are two separate issues. One, client retention needs to be every financial advisor’s first goal all the time. There is no logic to prioritizing chasing the next client if one has a leaky bucket. And, due to recent market volatility and industry stumbles, retention is a bit lower, client movement is a bit higher, so now more than usual, client communication which drive retention are critical. Two, client consolidation is the easiest asset-gathering program and often goes overlooked a bit. Many clients have additional liquidity events, the sale of a house, the cashing in of a retirement plan and the like, and financial advisors need to be focused on capturing each of those sums as their second sales and marketing goal before chasing new clients, which necessarily will take more effort.
A4A: You also mention in the report that client referrals will remain the best marketing method. Do you see that changing over time as the internet (such as LinkedIn and the like) creates the potential to reach one's target market in a cost effective and efficient manner?
Roame: Yes, beyond client retention and client consolidation, client referrals will remain the best marketing strategy for financial advisors with clients (obviously this is not true for new financial advisors who have no clients from which they seek referrals). I agree that the internet will make sourcing a new client increasingly easier and this will grow in popularity, but it will grow in a related ways, which is this: Prospects my source three or four advisors via the internet and then ask amongst their friends who must use any of them, and this will lead back to client referrals.
A4A: Why do you think professional referrals are so important as a part of the winning sales and marketing tactic?
Roame: I am not sure I think that professional referrals are as successful as others claim. I think many financial advisors overemphasize this relatively passive marketing strategy. When done correctly, financial advisors would be asking each of their clients for the names of their CPA, lawyer, insurance agents and the like, and asking those clients to connect them. That would be an aggressive and likely successful strategy but few financial advisors take to it to such an extent.
A4A: You in the report also mention that firms using target marketing will be the most successful. Is there one target market that you think will prove more successful than another, say IRA rollovers or inheritance?
Roame: The key to target marketing is to find a segment that has both a publication and a meeting. In the publication, a financial advisor should seek to get quoted, write an article, and/or advertise. At the meeting, financial advisors should seek to speak, to exhibit, and/or attend. Nearly any market segment that gathers its members through a publication and meeting can be successful – Microsoft employee, doctors, auto dealer owners, country club members, and the like.
Q: A4A: In the report, you write that the “moderately affluent” may provide the best opportunities for financial advisors. Why so? Is it that the “affluent market” is well mined and no one is pursuing the moderately affluent? Do you think that serving that market could prove challenging given that it's costly to service?
Roame: Yes, the ultra-affluent market is small in numbers and they do not exactly run around looking for new financial advisors. The affluent market is desired by every financial services firm and is competed for aggressively by thousands of wirehouse brokers. THE more moderate affluent households are often ignored by many, sometimes even fall below account minimums for many. Note that Fisher Investments, Edelman Financial Group, The Mutual Fund Store and Hanson McClain all target moderate net worth households, not the super affluent. Technology and outsourcing (e.g. turnkey asset management programs or TAMPS) can still allow such a firm to be extremely profitable.