By Cyril Tuohy
The first step to solving a problem is admitting you have one in the first place, and many registered investment advisors (RIAs) admit to having this problem: They don’t invest in the ingredients that will ensure the growth of their companies.
RIAs know that growth is critical to their success, yet only 5 percent of RIAs participating in a recent survey felt they were advanced in marketing and business development, two areas considered key to long-term growth.
The findings are included in the 2014 Fidelity RIA Benchmarking Study published by Fidelity Institutional Wealth Management. The online survey was conducted from May 6 through June 30, by an independent research firm.
More than 600 companies, primarily RIAs, participated in the survey and the results were compiled from 411 companies that completed the survey.
David Canter, executive vice president and head of practice management and consulting with Fidelity Institutional Wealth Services, said that as leaders ponder their strategic plans for 2015, they should look within their industry, to their high-performing peers for insights.
“Three-fourths of firms see improving their marketing and business development as a top strategic initiative, but they are struggling to make progress,” Canter said in a news release.
Contrary to appearances, growth is not a haphazard, scattershot activity. Rather, it is the result of a disciplined and measured march built step by step over time.
Enough with what’s wrong with RIAs, though.
The industry is on the cusp of a new year so it’s time to focus on what RIAs are doing right.
Here’s a hint: Compared with other RIAs, the top performing RIAs are more efficient at exploiting “centers of influence,” a law firm, an accounting practice or a public relationship partnership with which the RIA does business, the survey found.
Lesson One: High-performing RIAs tell a consistent firm story, the survey found. High-performing RIAs are 1.7 times more likely to tell a consistent story with client and prospect-facing associates describing their firm and its key differentiators in the same way, Fidelity researchers found.
What’s the takeaway? Stay consistent.
Lesson Two: High-performing firms are almost twice as likely to communicate their target client profiles effectively to generate the right referrals. Clients and centers of influence, as a result, may identify the most appropriate referrals, which may lead to a higher percentage of clients fitting target profiles over the long run, the research found.
What’s the takeaway? Communicate.
Lesson Three: High-performing RIAs are four times more likely to say their centers of influence referral processes are highly developed, which means high-performing RIAs are quick to thank sources for referrals and work to understand the target client profiles of centers of influence “so they can send reciprocal referrals,” Fidelity said.
It also pays to mine an RIAs data on clients and prospects at a center of influence, the survey also found.
What’s the takeaway? Establish stronger referral processes around centers of influence.
Lesson Four: High-performing firms have talent and resources already in place, while one-third of RIAs are pursing business development — a function high-performing RIAs are less likely to be looking to fill since the position of business development officer is redundant.
High-performing RIAs are twice as likely to be pursuing initiatives to develop talent management or to change compensation structures, “signs that they may be more proactive in motivating, training and retaining employees,” the benchmark research found.
What’s the takeaway? Manage talent and hire selectively.
There are plenty of other variables that contribute to the success of an RIA: the personalities of an RIAs leaders, the technology platforms used by the firm, acquisitions made along the way and what segment of the market an RIA serves.
Yet, the survey’s inescapable conclusion is that RIA growth isn’t an accident — and never should be. (If it is, then it’s time for the company’s leadership to look in the mirror.)
Steady growth is the result of a deliberate strategy set after the RIA and its senior managers have spent hours analyzing company metrics, and come up with a carefully executed strategy of where to deepen relationships with existing clients, and how to go about cultivating new prospects.
The rewards speak for themselves.
High-performing RIAs in 2013 delivered median revenue of $321,000 per full-time equivalent employee compared with $245,000 for all other firms, the survey found.
The survey also found that from 2010 to 2013, higher-performing RIAs delivered a 17 percent compound annual growth rate of assets under management, compared with an 11 percent compound annual growth rate for all other eligible firms over the same period.
Cyril Tuohy is senior writer for InsuranceNewsNet. He has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].
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