Advisers Sanguine about Client Acquisition

Referrals and networking were touted as top acquisition strategies in 2012 by advisers, who expect to rely on the same approaches in 2013.

Most advisers are feeling optimistic about their ability to expand their businesses and acquire new clients throughout the year, according to Russell Investments’ latest quarterly survey of advisers, the Financial Professional Outlook.

Last year, most advisers surveyed (86%) acquired more clients than they lost, with nearly half (48%) indicating they brought on more than 10 clients or households. Survey respondents appeared confident in continued growth when asked to consider business development goals for 2013, with the same proportion of advisers (48%) indicating they aim to acquire more than 10 clients or households, and another 30% targeting seven to 10 new clients.

About a third of advisers (32%) said they believe clients are optimistic about the capital markets over the next three years—the highest proportion since the March 2011 edition of the survey. Three-quarters of advisers (75%) reported also feeling 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 markets is bolstered by strong recent performance, said Kevin Bishopp, director of practice management for Russell’s U.S. adviser-sold business. “Yet there is a finite universe of individual investors and a highly competitive environment for advisers,” he said. “To differentiate themselves, advisers need to deliver a superior service and relationship experience, not just a product or portfolio.”

A majority of advisers (87%) 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%), referral prospecting through current clients (54%) and professional networking (43%). The least popular sources were the use of a business advisory board (2%), advertising (6%) and social media (7%).

Referrals Drive Growth 

 “In our work with advisers, we find that most receive the referrals they deserve,” Bishopp said. “In other words, if advisers invest considerable time and energy in the right areas, they can drive commensurate results. 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%) 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% of advisers) and investors no longer wanting to manage their own money (42% 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,” Bishopp said. “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%) said they lost one to three clients in 2012, while only a quarter (26%) lost four or more clients. The primary reason given for losing clients was a cause beyond the adviser’s control: the death of a client.

Acquisition and Aging Client Base 

Bishopp pointed out how important it is 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,” he said. “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.”

There is also a “generational risk” clients in retirement can pose, Bishopp noted, 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,” Bishopp said. “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.”

The Financial Professional Outlook was fielded between May 2 and May 17, and includes responses from 251 financial advisers working in more than 100 national, regional and independent advisory firms nationwide. The survey, a video and full report of the findings can be downloaded from Russell Investments’ website.

Russell Investments is a global asset manager.