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Here’s How Top RIAs Grow Their Client Base with Amazing Success

By Rita Raagas De Ramos January 3, 2019

This is the first installment of a three-part series looking at client recruitment and retention issues.

Just as Yelp reviews can influence diners to try a new restaurant, client referrals are crucial to the growth of RIA businesses. Client referrals are the number-one contributor to the new client growth of the Financial Times Top 300 RIAs, according to a survey of the elite group.

Slightly more than one-third – or 36% – of the aggregate client growth of the Financial Times Top 300 RIAs, surveyed by FA-IQ sister publication Ignites Research, comes from client referrals.

Ignites Research surveyed 192 advisors from the elite group in October. Those surveyed had a total of around $580 billion in client assets, averaging around $3 billion per firm, as of that month. Advisors make it to the elite group based on their scores in six criteria: AUM, AUM growth rate, years in existence, advanced industry credentials, online accessibility and compliance records.

One advisor says his firm relies solely on client referrals for client growth. Four other RIAs say client referrals contribute between 90% to 98% of their client growth.

Only four advisors said client referrals contribute less than 10% of their client growth, while four others said they have not benefitted from client referrals.

Brian Vendig, Farmington, Conn.-based president and managing executive of MJP Wealth Advisors and among the FT Top 300 RIAs, says he’s not surprised client referrals are so critical for the success of many in the elite group because “your clients are the people who know you best.”

It’s natural for people to share their experience – especially when it involves “great advice or great service” – with their friends or family, Vendig says.

“If the client who is referring the advisor is your friend, colleague, spouse or whoever it may be, and you two are like-minded individuals, then that referral resonates,” Vendig says.

Vendig says MJP Wealth Advisors also gets new clients from “a lot of organic growth” because of its defined benefit retirement business, where they work with employers on their employees’ 401(k) and 403(b) plans. The 403(b) is a retirement plan for certain employees of public schools, employees of certain tax-exempt organizations, and certain religious ministers.

Advising employees on their retirement plans is an effective way of developing relationships, according to Vendig.

“Being able to work with individuals that are participants within a company’s 401(k) or 403(b) plan or getting to know owners of small-to-medium business retirement plans sometimes leads to organic client growth,” Vendig says.

Referrals from accountants or attorneys rank a distant second in terms of effective client acquisition strategies, contributing around 15% of aggregate client growth.

The client acquistion strategies ranked third – cited by 6% of the respondents – are a three-way tie among non-ad marketing materials (such as email newsletters, blogs or videos on company websites); connections through the advisors’ organizations or affiliations (such as universities, professional groups, charities or sports teams); and leads generated form financial education-related events organized by their firms.

MJP Wealth Advisors also spends “a lot of time” creating and distributing electronic marketing communications, according to Vendig.

“That helps drive brand awareness and leads to new client business outside of traditional avenues,” he says.

MJP Wealth Advisors also works with custodians who provide client referrals for a fee.

One advisor who declined to be named says referrals from other advisory customers are also becoming increasingly important because the fees charged by custodians with client referral programs are eating into profit margins.

Brian Vendig

“We were part of client referral programs of custodians in the past, but they are pretty expensive, so we dropped them,” the advisor says.

One such custodian charges 25 basis points of the assets under management generated from the client referral, according to the advisor.

“So, if you have that client for 10 years, you’re paying that 25 bps to the custodian for 10 years even if they really don’t do much beyond the referral,” the advisor says, adding that the custody fees are separate from the referral fees.

Other client acquisition strategies that are in use but don’t contribute as significantly to the RIAs’ aggregate client growth include targeting a niche profession of clients (such as doctors, athletes, or entertainers – although there are some RIAs who benefit more from this approach if it’s their core strategy); events not related to financial education (such as sports, dinners, community projects); exposure in news media; advertising; and social media presence.