To increase their assets under management, registered investment advisors might want to spend less time pressing the flesh and more time pressing buttons.
Referrals are typically seen as the best way to grow an advisory practice, but a newly revealed data set reveals that technology is key to business development.
Graig Norden, president of San Francisco-based Freewheel Marketing, developed the data set after establishing a new scoring regime for how RIAs are implementing technology, finding that the fastest-growing firms are taking a more holistic approach to digital marketing.
“There’s now evidence to show that technology is really going to help improve RIA’s businesses,” Norden says. “Financial services is a relationship-oriented business. The report suggests that the way in which consumers buy financial advice has changed – we argue that the way in which advisors sell their services should change as well.”
Norden and his co-researcher, Annalisa Alden, Freewheel’s head of operations, isolated 35 different pieces of technology connected to financial firms’ marketing strategies, grouping them into nine categories and then weighting them based on projected impact to develop a “Freewheel Score” that reflects a firm’s level of technological adoption and sophistication.
The Freewheel scoring considers nine technological categories: marketing automation, blogging, programmatic ad buying, retargeting campaigns, lead-conversion tools, social media widgets and sharing, HubSpot marketing grades, enhanced website analytics and Google Analytics. Marketing automation and blogging are given the highest weight in the Freewheel scoring scheme (20 and 15 points, respectively) while Google Analytics, at 5 points, was given the lowest scoring.
Norden first applied his methodology to what he deems as the 106 “largest” RIAs, culled from Discovery Data’s list of “Best RIAs”. These firms are non-dually registered and manage at least $2 billion in AUM, more than 50 percent of which are from retail clients.
For comparison, Norden then applied Freewheel scores to “fast-growing” RIAs and large asset managers.
“Our thesis was that those using technology, who are actually strategically implementing technology in their marketing efforts, are going to be better prepared to grow AUM,” Norden says.
It turns out Norden and his co-authors were right. When Norden’s scoring methodology was applied to Financial Advisor’s 2016 list of 50 Fastest Growing RIAs and compared to the larger cohort of RIAs, the fastest growing firms had scores 28 percent higher than the greater universe of RIAs.
The list of large RIAs had a mean Freewheel Score of 25.3 and a median score of 20.3, while the fastest growers had a mean score of 31.9 and a median score of 25.9.
“In the 50 fastest growers, the AUM bandwidth is variable, so there’s a lot of very tiny shops growing quickly, and some very successful larger shops also expanding their footprint,” Norden says. “Top to bottom, regardless of size, technology is a differentiator. It’s an equalizer. We’re no longer looking at a sales-driven arms race, we’re seeing that small firms can be innovative and use technology to level the playing field.”
The set of large firms were more likely to use lead conversion tools, programmatic ad buying and retargeting campaigns than fast growers, while fast-growing firms were more likely to include social media widgets and sharing tools on their websites.
Alexandria Capital, a Tarrytown, N.Y. RIA with about $630 million AUM, was singled out for its technology and growth -- the firm ranked 11th in Financial Advisor’s 2016 list of fastest growing RIAs, and was singled out as a high-scoring, boutique firm.
“There are smaller businesses, some as small as $200 million, that are building around technology right now, and that’s a little surprising,” Norden says. “Firms that are doing that should be well-positioned for the future, while their peers that are older and adopt new technology on more of an ad-hoc basis are going to struggle to match the rigor.”
Norden’s custom dataset revealed that, after deciding to embrace digital, the when, where and how of technological implementation makes a big difference for advisors.
“Marketing automation tools were scored more heavily than others, and for good reason,” Norden says. “If you’re making a foray into digital marketing, this is the best place to start. All of these other tools work with the automation platform, it’s a hub that all the other spokes in a digital marketing toolkit emanate and revolve from.”
Even a relatively simple addition, like the use of a blog on a company’s website, correlated with faster growth.
“The apparent effectiveness of blogging was one thing that really jumped out at us,” Norden says. “Among the set of largest RIAs, only 45 percent included some kind of blog on their website. But 74 percent of the 50 fastest growing RIAs were blogging regularly. That’s not any coincidence.”
Yet blogs have become an afterthought for many financial companies because some didn’t want the compliance risks that come with publishing opinions and personal thoughts online, notes Norden.
“Blogs were something that people considered lowbrow, and many financial firms were afraid to move in that direction,” Norden says. “Most companies favored research and quantitative data instead of real-time, personal, topical posts. That is a mistake.”
Even embracing ubiquitous tools only loosely related to the marketing process, like adopting Google Analytics, positively impacted firm growth.
While most large firms, nearly 69 percent, reported using Google Analytics, 90 percent of the fastest-growing firms use Google Analytics.
“By itself, Google Analytics isn’t something that should directly impact AUM growth, but that would seem to hold true for most of these marketing technologies,” Norden says. “The correlation is there, though. We wanted to include it because it’s something that people are familiar with and it’s a good benchmarking tool – as it turns out, the firms that use web analytics are also growing more quickly.”
Fast-growing RIAs are also more likely to use “enhanced analytics” that track website activity more deeply than Google’s offerings, according to Freewheel’s data.
Norden said that the data set suggests that faster-growing RIAs take their websites more seriously. A “marketing grade” by Cambridge, Mass.-based software developer Hubspot that Norden used as part of his scoring rated websites on their use of search engine optimization, mobile responsiveness and cybersecurity protections.
“That grade was significantly higher among fast-growing RIAs and asset managers,” Norden says. “That makes some sense, because if you think about how people are doing business right now, it’s moving towards mobile and it’s certainly already online.”
The marketing grade also uncovered a consistent element among smaller, fast-growing firms: a sleek, up-to-date website.
“These smaller firms are building exquisite websites," Norden says. "They don’t necessarily incorporate all of the fancy things that a large company website would, but their attention to detail is commendable. That effort shows up in their marketing grade score, which reflects site performance. This is an element that many large and mid-sized firms aren’t accounting for,”
Overall, Norden notes that 50 percent or fewer RIAs had adopted software in most categories of technology, offering advisors an opportunity to differentiate themselves from their peers by embracing digital marketing tools.
“Marketing technology and asset growth go hand in hand, as it turns out,” Norden says. “The best way to expand into new business initiatives is to create new technological resources to usher people through the process.”
While Norden likes to call technology an “equalizer” between large and small firms, it’s also a differentiator. While large and small firms will likely find ways to adapt to changing times and clients, mid-sized firms may feel squeezed out.
“Big firms can afford to buy themselves out of trouble and use technology after it’s been developed to comply with changing regulations,” Norden says. “Small firms are too small to afford a sophisticated technology strategy, but they can afford to innovate because they are small, they have fewer technological needs. Mid-sized firms have comparative disadvantages to both. They’re not large enough to buy themselves out of trouble, and they’re established enough to have a lot of human elements.”
In a typical mid-sized RIA, which may have around 30 employees with an average age of over 50, and clients that may skew even older, adaptation to new technology will be difficult, leading to further compression within the industry.
Norden predicts that mid-size firms will languish because their antiquated marketing techniques will fail to create organic growth, and that such RIAs will eventually collapse or be absorbed by larger companies.