Financial Advisors: Diversify Your Marketing Portfolio


You know the concept of diversification well and advise your clients about it all the time: concentrating your investment eggs in one basket means all future value is dependent on that single basket. And that concentration carries inherent risks. Depending on what is in the basket there could be market, sector, company, geographic, political, or any one of a myriad of potential risk factors. Even diversified portfolios need regular risk assessments and rebalancing. 

So, if you’re like most financial advisors, why is your marketing overweighted on word-of-mouth referrals? Isn’t the lifeblood of new AUM and revenue at similarly at risk if your marketing is concentrated in that one basket? Are you dropping the ball on marketing-driven opportunity? 

The Only Thing Missing is Everything Else 

“Well, it works”, might be one answer. And it does, depending on how you look at it. If you only do one marketing thing, and it brings in all your new AUM, then yes, it does sort of work. The only thing you are missing is everything else, all the opportunity that’s out there in the marketplace – including referrals from new word-of-mouth sources. 

What’s that alpha? According to Charles Schwab’s 2023 RIA Benchmarking Survey, all but the smallest financial advisors in terms of AUM can find equal amounts of asset growth from COI/business partner referrals and other marketing as they can from customer referrals. So, it’s possible that concentrating on that one thing is leaving equal amounts of new AUM on the table. 

Are You Just Taking the Pitch? 

Wait a minute. Five-year AUM CAGR for all sizes of financial advisors range from 8-12%, and revenue is 10 to almost 14%, according to Schwab. What’s the problem? 

It’s a question of complacency and sustainability. There have been external drivers of asset growth over the period, including low interest rates and big tax cuts. So, maybe it hasn’t made sense to spend on beefing up marketing for financial advisory firms. Growth was good, or good enough. The question is can firms count on this macro environment to return anytime soon?  

Top firms are actively developing comprehensive strategic plans, building bench strength, and spending more on marketing – often between 2 and 5% of gross revenue. If you’re doing nothing different even though you know the environment and competition has changed, you’re essentially taking the next pitch. Eventually you must swing if you want to get a hit, otherwise you’re going to go down looking. 

Don’t Spend, Invest 

A $1B fund with revenues at 50 bps, for example, would have gross revenue of $50 million. With a 2.5% of gross revenue spend on marketing, that’s $1.25 million. (If your numbers are different, plug them in).  

One study found that each $10,000 spent on marketing can bring in $500,000 in AUM, which is $2,500 in revenue at 50 bps. That revenue comes in every year, so multiply by the average life span of your clients (Schwab says it is 27 years), factor in an AUM growth rate, and discount accordingly.  

There are a lot of variables to performance, and marketing doesn’t exist in isolation from other strategic efforts and alignment. The point is that firms should take a close look at what they are spending versus what they should be spending on marketing. (Or should we say investing in marketing). Unless your firm is really small, there should be plenty of resources available to work on diversifying the marketing portfolio. 

What Do You Do Next? 

Look at the industry benchmarks, including the programs and initiatives the top firms are undertaking. Calculate the numbers for your firm and put a budget together on potential marketing spend. If you don’t have the marketing talent on-staff to develop a strategy and a plan, outsource it to an expert. Those marketing experts should present a comprehensive set of initiatives and actions that align with the benchmark studies.  

You’re probably going to have to sell it all internally; remember inertia is difficult to overcome. And frankly some people may be satisfied with what are good enough margins to fund what has become for them a lifestyle business. They may just not want to grow or have the time horizon to see the benefits of investing in marketing. 

But if your firm does want to grow, does want to adopt the best practices of the top firms, and does see the value in diversifying your marketing portfolio, give us a call. We’re happy to start a conversation.


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