The key to attracting new clients

As investors get older and their decumulation continues to have more impact, firms will have to be more reliant on their ability to bring in new clients.

The 2018 RIA Benchmarking Study from Charles Schwab examines how the independent advisory industry remains on a growth trajectory, and how much new clients play a role in that growth.

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The data from Schwab’s latest study indicates assets under management grew 16.2 percent in 2017 at the median versus 9.6 percent in 2016.

“Certainly the market played a role in [the 2017 growth], but even when you peel away the market performance and net deposits by existing clients, you can see the acquisition of new clients was quite robust in 2017,” Jon Beatty, senior vice president of sales and relationship management at Schwab Advisor Services, explained. The study found that adding new clients has an outsized impact on AUM growth.

Asset growth from new clients is more than twice that from existing clients for a majority of firms, according to the study.

“The acquisition of new clients brings in about twice the amount of assets that are earned through the existing client base,” Beatty told IA. “As you expect, as the investors get older and decumulation continues to have more impact, firms will be more reliant on their ability to bring new clients in to retain growth rates and retain assets under management. That is a critical business measurement to track and make sure you’re understanding how you’re doing as a business owner.”

Ideal clients

According to Beatty, the firms that are most successful in attracting new clients are focusing their ability to appeal to and meet the needs of their ideal clients.

The study finds that firms that document both an ideal client persona and a client value proposition — of which more than half of firms do so — win 26 percent more new clients and 41 percent more new client assets than those that do not.

Beatty described the “ideal client persona” as the idea of “creating a focus within the firm on the particular attributes of clients that you work the best with.”

“We’ve talked a lot in the industry about services driving differentiation, and you can see that trend continues. But the idea that there’s another dimension of creating differentiation, which is creating a curated experience around a specific type of investor persona,” he added. Beatty said that he’s seen examples of investor personas around types of experiences.

“For example, some firms specialize in people who love to travel and create a client experience both around investment management processes as well as other services they might deliver to that type of client,” he explained to IA.

Another example he’s seen is a firm that likes to specialize in people who are interested in wine.

“They can create investment outcomes around wine, they can create community experiences around wine experiences,” Beatty said.

Another example is family governance, according to Beatty.

The study found that a growing number of firms have added services that address clients’ unique needs. Charitable planning services were offered at 80 percent of firms in 2017, up from 63 percent of firms in 2013. Family education services were offered by 72 percent of firms in 2017, compared with 56 percent in 2013.

Several other services that became more widely adopted in 2017 include: tax planning (76 percent), lifestyle management (33 percent), bank deposits (32 percent), life insurance products (31 percent) and annuities (31 percent).

The 2018 RIA Benchmarking Study, which was fielded from January to March 2018, contains self-reported data from 1,261 firms that custody their assets with Schwab Advisor Services and represent slightly over $1 trillion in assets under management. This self-reported information was not independently verified, according to Schwab.

Participant firms represent various sizes and business models. They are categorized into 12 peer groups — seven wealth manager groups and five money manager groups — by AUM size.