“If a firm isn’t growing, it’s dying” is a common refrain throughout the industry, and maintaining growth remains a major topic of conversation at all firms, big and small.
Four advisory titans who have been significant contributors to the industry gathered at Schwab IMPACT 2023 last week for a panel that explored what growth is these days, the power of partnerships, the client experience and how to win the war for talent.
“I met with somebody earlier today who has 18 openings. Where are they going to find 18 people when they need them tomorrow?” said Michael Lane, head of enterprise, U.S. wealth advisory at BlackRock and panel moderator of “Entrepreneurial Insights from Industry Titans.” He was joined by Kay Lynn Mayhue, president of Merit Financial Advisors; Julie Harrington, managing director Charles Schwab & Co.; and Dave Barton, vice chairman and M&A team leader at Mercer Advisors.
“People look at our business, and they say to me, an asset manager, that I'm under pressure. But the RIA community isn’t? I think we all know that's not true,” he continued. “There is margin pressure, if not gross fee pressure, that's happening in our industry, and we need to make sure that we're maintaining those for the health of our business and so we can serve our clients.”
The good news is that organic growth in general continues at a healthy pace—6.2% last year for small firms and 4.1% for large firms, according to the Schwab Benchmarking Study, which polled more than 1,300 advisors representing $1.7 trillion dollars earlier this year.
“Assets from new clients as well as assets from existing clients both reached the second highest point in five years,” Harrington told the audience. “And client retention remained at 97% for the last five years, attributed to all the trust that your clients place in all of you.”
For advisors to keep their margins—and preferably increase them—Mayhue said that organic growth has to be a keystone in every firm’s business plan. In fact, she said the small firm she started at was very successful in its growth because the firm was small and the plan for growth focused on just a couple of channels.
“What I find at now a $10 billion firm is we have a total of 14 growth tracks that our advisors can plug into because you can't have that one-size-fits-all approach,” she said, adding that there’s an evolution in the industry that is making old-fashioned “selling” more and more difficult.
“The unicorns of our business, those were the ones that were willing to put up the shingle and take the risk and go out and knock on doors and kiss babies. I know you've got a lot of next-gen talent, but I don't think that we're seeing a lot of that in this next-gen talent,” she said to the audience. “I think that the organic growth responsibility now falls to the firm. At least that's what I've seen in the succession transactions that we've done.”
Mercer’s Barton agreed.
“Last year we brought in $3.6 billion in new assets, so significant organic growth. The year before that, $3.1 billion in new growth,” he said. “And that’s omni-channel growth. We’re not relying on any one channel. Client referrals are great—they’re wonderful and typically the backbone for organic growth. But you've got to expand. And I'm not talking about a website and search engine optimization and being on social media, those are table stakes. You've got to go beyond that to really drive organic growth, because as you all know our industry is hypercompetitive.”
Partnerships, the panel said, can be extremely powerful in reaching new clients. These partnerships can include referral relationships with attorneys, CPAs and retirement plan sponsors. While Mayhue cautioned that retirement plans do require a level of expertise, she was adamant that they are an important part of future growth and another way to connect to the Great Wealth Transfer.
“Future growth means you need to reduce the age of your client base. First off, your advisors need to be generationally different. You need to look like the population that you're serving,” she said. “But meeting those folks where they are now is key, before they get that inheritance, before they have that money in motion. Going the plan participant route and building that relationship through those retirement plan systems is a relatively new initiative for us but one that's already producing growth.”
These partnerships, she continued, aren’t evidence that a firm “can’t do it all,” but rather the opposite. If a firm is focused on its own value proposition and how it delivers its value to its clients, it’s going to outsource as much as possible.
“You can actually drive yourself to unprofitability if you try to do it all,” she said.
With methodically-built partnerships, however, firms can focus on the client experience, which is what the business is about to begin with.
When Mercer, for example, wanted to stand out in a crowded RIA market, it started offering tax preparation and consulting to clients at a discount, and estate planning services, including drafting and administering documents, for free, Barton said.
“We want to deliver an enhanced value proposition to our clients so that they're saying, ‘Wow, I got a one-stop shop, a one-phone-call solution where my advisor can coordinate with all these different subject matter experts under one roof. I don't have to do anything. They do it. They deliver it. And by the way, it's much cheaper for me to work through Mercer than through a third party,’” he said.
And finally, finding and keeping talent remains the top priority for all firms. That includes hiring a top-notch marketer and a business development officer, preferably with a CFP designation, who “prefers to hunt rather than gather,” Barton said.
“Get those two forces combined, and they’ll produce very tangible growth results that will put you in the upper atmosphere,” he said.