Independent advisory firms are a bit like teenagers. They know they are likely to grow, but they’re not sure when or by how much. And they don’t know why they grow slower or faster than others.
Our firm works with hundreds of advisory practices, and we often see founders hoping that the next generation of professionals on their teams (we call them “G2”) will bring more new client relationships. But that wish often goes unfulfilled.
In a small and unpublished survey we conducted during a recent workshop, a group of advisory founders rated their own business development skills (using a score of 1 to 5, with 5 being “excellent.”) While most of the founders rated themselves a 5, they rated the partners who joined them later a full grade below at 3.9 and employee advisors at 2.8 (which is lower than even Philip’s college GPA).
The founders we work with badly want to help their younger colleagues build these skills, but they often struggle to find the right approach, mainly because they aren’t even sure how they do it themselves. Most firms still don’t consistently track their own growth measures beyond basic revenues and assets, so their business building comes from intuition, not data.
The younger advisors are meanwhile waiting for their firms to train them on this business development—and in a more systematic way. But most firms lack such systems.
According to an industry survey (the “2019 Financial Performance and Compensation Survey” published by Investment News and produced by the Ensemble Practice LLC), only 21% of firms gave their professionals any structured business development training. Most firms said they used “informal training,” which is often code for no training at all.
We want to refute three common business development misconceptions here.
Closing Skills Versus Lead Generation
When we talk with firm founders about business development training, they inevitably talk about their “closing skills”—how they persuade prospects to become clients. Closing includes concepts such as overcoming objections, removing obstacles and negotiating. Our data, however, would suggest that G2s have a different problem: lead generation, or finding consumers who want to talk to them in the first place.
According to the 2019 survey, advisory firms close only about 17% of the leads they generate. Fifty-seven percent of firms don’t even track those leads, so they aren’t sure what their success rate is in converting prospects into clientele. In fact, 40% of the leads never even follow up by calling or coming to a meeting.
On the other hand, when prospects do show up to a meeting, 78% of them become clients. This is a very high rate of success! And here is the biggest surprise—in those few cases where we can track the closing ratios of founders versus younger advisors, there is no material difference. G2 can close.
This means the founders’ advantage is not in closing but in their ability to generate leads in the first place—especially among prospects willing to engage and follow up. Apparently, once a prospect comes to an exploration meeting, they are yours to lose. This makes sense. In a 2021 survey of 1,000 high-income consumers we conducted, nearly a third said they considered only one firm when they hired their advisor. Another third of the clients met with two firms. That means closing skills aren’t paramount. Lead generation is.
Marketing As An Investment
Another problem is that advisory founders often see marketing as an expense, not an investment.
The fastest growing firms we work with have one thing in common—they tend to systematically generate “institutional” leads, which means clients are attracted to the firm, not a person. And for firms to build their reputations, they require a heavy investment in marketing that few of them are willing to make. Overall, firms spend just 1.6% of their revenue on marketing. Larger firms spend a bit more—a breathtaking 1.7%, according to the Ensemble Practice’s “2022 Financial Performance Survey.”
This survey suggests that about half of a firm’s marketing budget is spent on the marketing staff, which is frequently a single person. The rest of the budget is spent on client appreciation (which takes up roughly 25%) and client events (which use 15%). Sponsorships and charity are also popular uses of marketing funds. Interestingly, only 6% of the budget goes to content development and publishing or other types of outreach.
If a firm lacks a strategy for brand building, the only reputations that emerge from the firm are those created by the individuals networking for it. That’s an effective but very slow process. Reputations tend to grow slowly, and it’s only later in someone’s career that their name more quickly gets around. That’s why founders love networking (it’s very effective when everyone knows who you are) and why younger professionals hate it (you get only cold shoulders when nobody knows your name).
Philip has witnessed this firsthand. Twenty years ago, if he ever generated a lead it was because of the reputation of his firm, Moss Adams. Today he can more easily knock on a door with his own business cards, but back then he actually had to introduce himself by saying, “Hi! I am with Moss Adams. … By the way, my name is Philip.” To build a firm brand, you need consistent marketing investment. As they say in Bulgaria, “You can’t fish without bait!”
Asking For Leads Instead Of Generating Them
Most founders say their G2 advisors should be asking for referrals. Our research suggests younger advisors would rather be digging ditches with a fork and knife.
In our 2021 consumer survey (which was called “How Consumers Choose”) we found that only 12% of all advisory referrals were generated by the advisor asking the (embarrassing) question, “Do you know anyone we should work with?”
There are very strong opinions on this topic. A generation of advisors has been taught to ask for referrals and include those requests in their email signatures. But we are skeptical of this approach.
Relationships are like bank accounts, with deposits and withdrawals. You get a “deposit” if you offer people great service, consistency and unexpected instances of staff going “above and beyond.” The balance is built over the years. But when you “ask” for referral, you’ll experience a very large withdrawal (and if your balance is low, you will go into overdraft). Very experienced advisors, including firm founders, may have a high enough balance to withstand it, but young advisors do not yet.
These misconceptions about prospecting led the consultant Stephen Wershing to write an excellent book called Stop Asking for Referrals. Julie Littlechild, a well-known marketing consultant and expert in our industry, has offered similar statistics with the same insight—that referrals are critical, but they don’t come from asking. In 2021, Mark participated in a “Becoming Referable” podcast with Stephen and Julie on this topic. It is still a relevant listen today.
Firm founders may not be perfect players in the referral game either (even though they give themselves a perfect score). Our “2022 Financial Performance Survey” shows that firms across the industry generate three to five referrals for every 100 clients (the “gold standard” is seven to 10, a number we adopted from Littlechild’s white paper, “The Rules of Engagement,” published in 2013).
We also found that large firms, which benefit from safety, stability and brand name, may have an easier time than small ones getting client referrals. The takeaway is this: Firms should not be teaching advisors how to ask for referrals but how to impress clients.
Lack Of Accountability And Process
Oddly enough, even though founders are dissatisfied with the business development efforts of their younger colleagues, they are doing very little themselves to create a process or discipline for business development.Consider this data from our financial performance survey:
• Fifty-seven percent of advisory firms do not track their leads and do not manage their lead pipeline. There is no excuse for this, and founders have the power to improve on the process.
• Only 18% of firms set targets for business development for their professionals. The rest of the firms rely on a “best efforts” approach.
• Of the very few firms that set targets, more firms set targets for employee advisors than for partners. What happened to leading by example?
• Partners spent 25% of their time on business development but rarely afforded the same amount of time to their younger colleagues.
At the end of the day, all these statistics speak to a culture that neglects and perhaps frowns upon business development. Advisory firms seem very reluctant to put any focus on growth activities, perhaps because they are leery of becoming too “salesy.”
What Works
Now that we’ve taken the mistakes into account, it is time for us to turn to the strategies we believe can work best for training future business developers:
Create a business development culture. Ideally, firms can develop a culture that acknowledges business development as one of their vital functions. In any organization most people tend to focus on what they believe is valued by their leaders. So when business development is seen as a “dirty deed” that we all do but don’t talk about much, there are not a lot of young professionals who get enthusiastic about it. If it were instead a highly regarded function of being a good advisor, then of course every professional would seek to improve. Celebrate when it happens. Recognize the wins.
Believe that business development is for everyone. If this job is regarded as some magical activity that only naturally gifted people can do, those who think they have no talent for it will never dare try. Have you ever watched a marathon? If you have, you’ve likely seen all kinds of people cross the finish line—older and younger, bigger and smaller, those who are graceful and those who are plodders. They have all completed what appears to be a nearly impossible feat by devoting effort to it.
Cultivate referral channels. Referral channels include custodian programs, banks and credit unions, CPA alliances and even relationships with property and casualty insurance firms where one firm systematically refers clients to the advisory firm. Firms that cultivate such referral relationships create a rich ecosystem of leads, which once again is the critical resource for developing young professionals.
Make it easier for clients to refer. You want to make it easy for your clients to brag about you. This means supplying the right words to describe your firm and pointing at the right resources (such as a website) where prospective clients can do some research on their own.
Build your reputation in niche markets. When younger professionals get involved in well-defined niches, they can more easily find their way through the publications, forums, organizations and people that matter.
Create content. This is the modern marketing weapon of choice. If you can write great articles and produce great videos, you can reach and impress thousands, because these are items that can be easily forwarded and shared. Once again, if your content is specific and unique to a niche, you will likely be more successful, and these are talents often suited to young professionals.
Invest in the channels you already own. The Wall Street Journal may not accept an article from a young professional in your firm, but your website will. The channels you own (rather than the ones you have to pay for through advertising) are a great platform for helping your younger professionals build their reputations. Still, those channels need an audience. To bring that audience to you, you still need to market.
Every organization needs to find a way to grow organically. Otherwise, it will not be able to replenish its resources and attract the talented people needed. Growth requires a systematic effort, though, much like any other business activity. It requires a combination of dedication, the right method, the right tools and the right amount of perseverance. The younger professionals can bring the effort and dedication, but advisory firms need to focus that energy on the right methods and tools.
Philip Palaveev is the CEO of the Ensemble Practice LLC. He’s an industry consultant, author of the books G2: Building the Next Generation and The Ensemble Practice and the lead faculty member for the G2 Leadership Institute. Mark Schoenbeck is the executive vice president of advisor engagement for Kestra Financial—a financial advisory organization with 1,700 professionals throughout the country.