Most financial advisers are feeling optimistic about their ability to grow their businesses and acquire new clients throughout 2013, according to Russell Investments’ latest quarterly survey of US advisers, the Financial Professional Outlook (FPO).
In 2012, 86 per cent of advisers surveyed acquired more clients than they lost with nearly half (48 per cent) indicating they brought on more than 10 clients or households. When considering business development goals for 2013, survey respondents appear confident in their prospects for continued growth, with the same proportion of advisers (48 per cent) indicating they aim to acquire more than 10 clients or households, and another 30 per cent targeting seven to 10 new clients.
In the survey, 32 per cent of advisers said they believe clients are optimistic about the capital markets over the next three years – the highest proportion since the March 2011 FPO survey. Three-quarters (75 per cent) of advisers reported that they too are optimistic about the markets.
“Many advisers are finding it easier to acquire new clients than it was just six months ago, as investors’ willingness to participate in the market is bolstered by strong recent performance,” says Kevin Bishopp, director of practice management for Russell’s US adviser-sold business. “Yet there is a finite universe of individual investors and a highly competitive environment for advisers. To differentiate themselves, advisers need to deliver a superior service and relationship experience, not just a product or portfolio.”
A large majority of advisers (87 per cent) reported that they feel optimistic about acquiring new clients and households in 2013. Most indicated that they plan to leverage the same strategies used in 2012 to source new clients this year.
The top three acquisition strategies that advisers pointed to for 2013 were receiving client referrals reactively (76 per cent), referral prospecting through current clients (54 per cent) and professional networking (43 per cent). The least popular sources were the use of a business advisory board (two per cent), advertising (six per cent) and social media (seven per cent).
“In our work with advisers, we find that most receive the referrals they deserve. In other words, if advisers invest considerable time and energy in the right areas, they can drive commensurate results,” says Bishopp. “The root of success in generating referrals or proactively asking for them is in engagement with current clients. Investors put trusted relationships at risk when making referrals, so it’s essential that a client understands their adviser’s offering and expertise, and believe that their family and friends can benefit from the excellent service that they receive themselves.”
Most advisers (66 per cent) pointed to referrals as the reason they believe prospective clients are interested in meeting with them, along with dissatisfaction with the service of another adviser (65 per cent of advisers) and investors no longer wanting to manage their own money (42 per cent of advisers).
“While advisers may have an opportunity to attract new clients, they must still consider the capacity of their businesses and the fact that not every referral is a good referral,” said Bishopp. “Advisers continue to face more market complexity, more product options, more regulation and more service expectations from clients – all with increasing pressure on fees. Advisers can’t just rely on the same strategies they’ve used in the past – they need to be smart about how they allocate their time and build their service models so they can grow their businesses intelligently.”
In addition to acquiring new clients, most advisers reported fairly high levels of client retention. The majority of respondents (55 per cent) said they lost one to three clients in 2012, while only a quarter (26 per cent) lost four or more clients. In identifying the primary reasons for losing clients, many advisers pointed to a cause beyond their control: a client’s death.
“It’s important for advisers to consider the composition of their books of business when establishing an acquisition strategy. If an adviser has many clients in the decumulation phase of retirement, when income distributions begin to exceed investment returns, it can be important to seek out younger clients in their peak accumulation years to help maintain a sustainable business,” said Bishopp. “One rule of thumb is that for every client over age 70, an adviser likely needs one or two clients in their 50s who are accumulating at an increasing rate. This can be an important consideration when thinking about the types of new clients to seek out.”
Bishopp also pointed to the “generational risk” clients in retirement can pose, or the danger that an adviser may not retain the assets transferred to an investor’s beneficiaries.
“When thinking about client acquisition, it’s also important that advisers consider establishing relationships with their clients’ children and heirs,” says Bishopp. “If they can demonstrate their value and engage these emerging prospects, they can put themselves in a strong position to continue to manage inherited assets and drive referrals amongst the next generation of investors.”