How fast-growing advisors get clients to give referrals

Asking clients why they're satisfied helps advisors plant stories that lead to referrals, a report from Capital Group found.

Only about a quarter of financial advisors say they are good at acquiring clients – and not having a strategy in place stifles the growth of their business, according to a study issued today by Capital Group.

Even among those who are growing their asset under management, revenue, and number of clients fastest, less than half, 43 percent, said they are adept at branding, marketing, prospecting, and garnering referrals.

Still, the top quintile of firms by annual growth attributed 43 percent of their increases in assets under management in 2023 to new client acquisition, not including mergers and acquisitions, compared with 33 percent on average for all advisors.

There is a clear opportunity for nearly three quarters of advisors to improve the ways they approach and attract clients, said Mike Van Wyk, director of research and insights at Capital Group.

“Start with branding. Have a story that tells your ‘why,’” Van Wyk said, of why people would want to work with an advisor’s firm. Without that, “don’t bother with marketing,” he said.

One way that advisors prompt clients to give them referrals is to ask them whether they are satisfied with working with them and why, he said. That gives clients “a packaged referral story” that they are more likely to use when talking with friends and family, he said.

“The ideal way to do it [is to] have at least an annual conversation with your client,” he said.

“Then it’s really easy to say, ‘That’s really encouraging to hear.’”

Among the fastest-growing advisors, 28 percent use that kind of strategy, compared with an average of 16 percent among all advisors, Capital Group found. Additionally, the fastest-growing firms were twice as likely as peers to track key performance indicators of branding, at 40 percent versus 20 percent. They were also more likely to have written marketing plans, at 32 percent compared with 18 percent and use digital marketing or social media to engage with prospects, at 40 percent versus 24 percent, according to the report.

Another differentiator among fast-growing advisors is that they provide more than the table-stakes services of investment management, retirement planning, and financial planning. They offer estate planning, tax planning, wealth transfer, education planning, life insurance, and charitable giving strategies more so than others, Capital Group found.

Further, they are more likely to have written business plans, use technology to automate aspects of their jobs, employ model portfolios, and establish objectives for their teams.

All of that may be increasingly important for bulking up business in an industry where mergers and acquisitions are rising, Van Wyk said.

“You are seeing a lot of M&A activity – one of the reasons why is organic growth is not incredibly strong,” he said. “There is a reliance on that level in order to continue to grow and scale to size.”

It also helps to have a 401(k) business.

“High-growth advisors tend to have a lot of high-net-worth clients, who are often business owners” and need retirement plans for their staff, Van Wyk said.

The top quintile of advisors by growth are more likely than peers to have at least 25 percent of their assets under management in defined-contribution plans, the study found. Those advisors are also 23 percent more likely to have strategies for getting new business from plan participants.