Results of the first annual S&P/FA advisor survey.

    Whether you are a manufacturer, retailer or financial advisor, marketing is what makes your business catch on. But over the years, many advisors, being analytical people at heart, have relegated marketing to a minor role behind crunching numbers for clients' financial plans and investment portfolios.

Now, that attitude seems to be undergoing a long-needed change. In a recent e-mail and Web survey of nearly 500 readers of Financial Advisor magazine by Standard & Poor's Corp., we found that nearly half of those polled spent more time and money on marketing last year over 2005. More than 40% say they now spend between 5% and 15% of their time on marketing, and a substantial number-13%-spend almost a third of their time getting the word out about their practices to clients and prospects.

That advisors appear to be increasing their marketing efforts is encouraging. Tiburon Strategic Advisors, the California-based consulting firm, has concluded that financial advisors need to touch their clients at least 28 times a year to achieve a high level of customer satisfaction. Increased contact with clients also yields increased revenues for advisors. Tiburon has found that advisors who spend more than 60% of their time focusing on clients earn more than five times as much as those who spend less than 30% of their time on client activities.

The 499 respondents to the First Annual Standard & Poor's/Financial Advisor magazine Advisor Survey, conducted by e-mail in January, revealed that advisors are deploying a wide range of methods to communicate with clients, including one-on-one meetings, direct mail, e-mail, seminars, golf outings and, for a few, radio shows. But advisors responding to the poll indicated that there is still a lot more outreach they could be doing to build their practices. Many, for example, say that they still lack e-mail addresses for the majority of their clientele-a distinct handicap for those days when you need to quickly reassure folks after markets turn choppy. And although many are putting more muscle into marketing, especially to their topmost clients, an overwhelming 77% of advisors still admit that they could do more.

Indeed, a majority of advisors-55%-say they communicate with the top 10% of their clients on a monthly basis, while 9% reach out as often as weekly. But the other 90% of clients are more likely to hear from their advisors just once a quarter, if not once a year. About half of the advisors we surveyed said they would like to get in touch with these smaller clients more frequently. But nearly as many do not, even though those clients may represent a source of asset growth. Why? "Procrastination," said a couple of advisors. "I am my only staff," said another. "I'm still building a team."

With half of the respondents to the survey revealing that they have lost at least some business to another advisor, it seems clear that every day you delay putting a broad marketing program into place may leave you at the mercy of competitors who want to increase their "wallet share" among your clients. On the other hand, we have observed a correlation between advisors who do put muscle into marketing and their asset and revenue growth.

Assets Are Up

Overall, just over half of the respondents told us their assets under management increased between 11% and 30% in 2006, with a sharp 29% saying their number of clients grew. Another 12.5% told us their assets increased between 31% and 50%, although with smaller growth in their client rolls. Very few saw assets and clients decline. And 49% of these advisors said they increased both the time and money they spent on marketing last year. Around a third said their time and money outlays were unchanged, but only 16% reported spending less time and 15% less money on marketing activities. About 42% of the respondents said they spend less than 5% of their revenues to market their practices.

That is roughly in line with Moss Adams LLC's 2006 Financial Performance Study of Advisor Firms, which found that financial planning, investment management and wealth management firms spend around 2% of revenues on business development and marketing, while investment advisory firms earmark 4.8% of revenues toward this area. The S&P/FA survey found, however, that nearly 41% of the advisors responding say they set aside 5% to 15% of revenues for marketing, and 10% say they spend more than 20%. How does this translate into actual spending? While 17% spend under $1,000 annually, nearly half spend $1,000 to $5,000-and almost 20% of those surveyed budget at least $10,000 annually to make their presence known.

Marketing spending and growth in assets under management also appear to go hand in hand, no matter how small or large a practice may be. Among those responding to the reader survey, 37% were small advisors with less than $10 million in assets under management. As you might expect, these smaller firms focus on growth; better than half of the advisors in this group spend more than 30% of their time and revenues in marketing their practices. In fact, half of these firms report spending more than $5,000 annually on marketing, with a quarter spending more than $10,000.

That spending appears to be paying off. Among the smaller advisor firms, 75% reported that their assets increased more than 50% last year and a healthy two-thirds said their revenues jumped by at least that much. But larger advisor firms are also experiencing growth in marketing activities side-by-side with expanding assets and revenues. For example, 15% of the respondents are among the elite of the advisor profession, managing between $101 million and $500 million apiece. More than 30% of them indicated they spent at least as much time and money on marketing last year as they did in 2005; those that did registered significant gains in both numbers of clients and assets under management.

Watch The Wirehouses

While marketing and practice growth appear to run in tandem, the types of practices advisors run plays a role in how much time and money they put into promoting their businesses. Although registered representatives of full-service brokerage houses can take advantage of their firms' national marketing and advertising campaigns, many still do a lot of marketing on their own. Perhaps this reflects the sales culture of the wirehouses, but 41% of the full-service brokerage firm advisors responding to the S&P/FA survey said they spend as much as 30% of their time on marketing. Another 28% spend even more time. By contrast, independent broker-dealer reps and registered investment advisors (RIAs) for the most part said they spend less time on marketing, although a sizable minority of RIAs does pump more than 30% of their time and revenues into promotion.

A key reason advisors need to keep marketing is the need to find new clients as their current roster ages. Many advisors garner the bulk of their assets when clients retire and roll funds from 401(k)s or other qualified retirement plans into individual retirement accounts (IRAs) under the advisor's supervision. So it is little surprise that more than a third of the advisors responding to the survey said that those between 61 and 75 years old now constitute as much as half of their clientele. Another 18% said that such older clients account for as many as three-quarters of those whom they serve. These findings line up nicely with those in the latest Moss-Adams Financial Performance Study of Advisory Firms, which found that among nearly 1,000 largely independent advisory practices surveyed, 29% had clients with an average age of 65 or more. That figure stands in sharp contrast to the respondents' goal of only 9% for such retirement-aged clients. Indeed, when we gave advisors taking the S&P/FA survey an opportunity to spell out why they have lost clients, 9% cited death as the cause.

Youth Movement?

Advisors responding to our survey did indicate that they are making some headway in garnering younger clients-not always the most lucrative market to serve, because their savings tend to be smaller or locked away in corporate retirement plan. For example, 30% said that consumers between 25 and 40 years old now make up between a quarter and a half of their clientele. And 45% said that those aged 41 to 60-pre- and early retirees-comprise a similar proportion of their clients.

The advisors' desire to gain better traction with younger consumers showed up noticeably when we asked them to identify the three communications methods on which they currently spend the most time. While individual meetings and phone calls topped the list, at around 80% apiece, nearly half put e-mail-the medium through which many younger Americans prefer to be reached-in the top-three category. A mere 4% gave top priority to their Web sites, probably indicating that they still regard them more as static brochures than dynamic communications tools. RIAs showed a greater inclination to communicate via e-mail and their Web sites than either full-service or independent B-D reps. But some advisors with older clients noted that few have any Internet access at all.

The information technology revolution also appears not to have reached many advisors. When we asked how many used a customer relationship management (CRM) software application, 51% said yes (with ACT, Goldmine and Junxure and Junxure-I receiving prominent mention). But 49% still do not use CRM to manage client outreach. And when we asked the advisors what topics they communicate to their clientele most frequently, another interesting split appeared.

Overall, advisors prefer to get the word out to clients on financial and retirement planning issues, followed by client interests, specific investments, specific goals such as saving for college or a second house and the status of the economy and financial markets. But as advisors' practices get larger, the order changes noticeably. Among practices with at least $500 million in assets, the economy and financial markets, retirement planning and information on specific investments and goals become the top three issues. That may be a result of both the larger portfolios of the bigger firms' older clients as well as advisors' need to provide more handholding about the investment climate to those living off their savings. "My clients want thoughtful communications," one advisor told us. "They want to know their investments are being watched. I relay this to them via weekly e-mail, a telephone call once every 30 to 60 days, an annual review and additional telephone calls during difficult market times."

Odds are that this advisor's clients appreciate the effort, and reciprocate through their loyalty. However you do it, marketing works.

 

William Glasgall is a vice president at Standard & Poor's Equity Research in New York, which recently launched the Advisor Communication Service. He can be reached at [email protected]. David Bilgoray of S&P's Market Intelligence Group assisted in the study. Information on Advisor Communication Service is available at www.acs.standardandpoors.com.