By Cyril Tuohy
Financial advisors grow their business through client referrals, “centers-of-influence referrals,” client events and many other ways. But many advisors admit their business development strategies still fall short.
Only 9 percent of respondents to a recent survey by the Financial Planning Association (FPA) said their business development process is “very effective,” and more than half of the advisors polled gave themselves a “failing” grade.
Advisors aren’t literally failing — far from it. Many make a good living. Instead, many advisors don’t think their businesses are where they would like them to be. Only a quarter of the respondents surveyed said they exceeded the goals they set for their business, and 35 percent said they fell short of their goals.
Valerie Chaillé, director of the FPA's Research and Practice Institute, said the latest research shows that advisors are “either not taking the necessary steps to create a plan for growth or they are engaging in the wrong marketing strategies.”
The research was published in the FPA’s 2014 Drivers of Business Growth study, which canvassed 434 professionals across the nation.
While 54 percent of respondents said having a strong business development culture is important or very important, only 13 percent reported that such a culture was very strong in their companies. In addition, less than one-third of respondents said they had a formal, written business plan.
Daniel P. Lash, a certified financial planner in Vienna, Va., drew a distinction between advisors who are working in the business and advisors working on the business.
“If you are not working on it you don’t get the growth you want,” Lash, a partner with VLP Financial Advisors, said in an interview with InsuranceNewsNet.
Many advisors — young sole proprietors in particular — work in the business by necessity, Lash said.
Advisors who spend much of their time in the business make sure the business stays afloat. Only when advisors start working on the business can they begin in earnest to steer the economic vessel toward short, medium and long-term goals, he said.
Lash recalled the days when he was, briefly, a sole proprietor. That was before he joined VLP and helped it grow to an 11-person firm.
One of the central themes in this study is that business growth is a planned phenomenon. It is not a haphazard occurrence, and advisers who think and plan strategically about their businesses are those who are succeeding in adding new clients and managing more assets, said Lauren Schadle, FPA executive director and CEO.
The survey found a strong correlation between the success of a financial advisor and the consistency of the advisory firm’s execution.
Consistency of execution tends to come with scale and structure. As advisories grow, managers hold one another accountable and members of the firm volunteer to take on tasks that some employees don’t want or are not particularly good at, Lash said.
“Some people are very good a processes,” he said. “Others are more quick-start people but get sidetracked. I'm good at delegating to others.”
Advisors pointed to client referrals as the most productive engine for the growth of the advisories but also cited “center-of-influence referrals” and client events as fertile ground to develop new clients.
The survey found that 80 percent of respondents have a reciprocal referral relationship with their accountant, 72 percent with their attorney, 32 percent with their insurance agent and 9 percent with their private banker.
It often takes years of building relationships with contacts located in “centers of influence,” and some advisors may find themselves bonding more closely with accountants or public relations counsel than with an attorney, he said.
Studies like this latest one from the FPA are designed to help advisors plan their futures at a time when not enough young advisors are taking over the reins from veterans who are planning to retire in the next 10 or 15 years.
Lash said that many of the findings in the report did not come as a surprise.
One unexpected piece of information, however, was the low percentage of respondents who placed importance on marketing growth through acquisition as a way to execute on a growth strategy.
Only 12 percent of advisors said they considered acquisitions to be critical to executing their own growth strategies over the next five years, and 11 percent found acquisitions “somewhat important.”
“That kind of surprised me,” Lash said.
Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. Cyril may be reached at email@example.com.
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