Firing on All Cylinders: Fueling Growth with Benchmarking Insights

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1 Firing on All Cylinders: Fueling Growth with Benchmarking Insights Marketing and Business Development Findings from The 2014 Fidelity RIA Benchmarking Study The secret of success is constancy to purpose. Benjamin Disraeli Over 85% of RIAs in The 2014 Fidelity RIA Benchmarking Study (the study ) cited growth as being highly important to their firms, with 87% of their focus on organic growth. Yet, when it comes to marketing and business development, key enablers of growth, many firms recognize they need to improve. Only 5% of participating RIAs felt their firms were advanced in these areas, and 75% said that improving marketing and business development efforts was a top strategic initiative in So what is hindering RIAs on this front? What lessons can firms glean by looking at what their peers are doing? Checklist Inside: For an Advice 2.0 Model I. Key study findings 3 Be laser focused on your strategy II. Lessons from High-Performing Put the investor at Firms the epicenter 4 III. Marketing Transform and your business advisors development landscape 7 Crack the product code IV. Opportunities, challenges, and outlook 16 Drive operational excellence V. Conclusions 18 Drawing on the study findings, this report shines a spotlight on RIA marketing and business development practices in four specific areas planning, firm story, relationship quality, and communications to provide insights that may help RIAs drive further growth. In addition, this report highlights the practices of High-Performing Firms 1 that stand out from others in a number of important areas. 1 The term High-Performing Firms refers to the subset of participating firms in this study with business results that meet the criteria defined on page 4. Reference to the concept of performing in the name of this group is not intended to connote investment returns. Past performance is no guarantee of future results.

2 About the research and respondents The Fidelity RIA Benchmarking Program seeks to provide RIAs with insights into how their firms compare with others in the industry, so they can identify areas of opportunity, set goals, and work toward improving their business performance. The 2014 study focused on marketing and business development. Respondents were primarily RIAs that custody some portion of their assets with Fidelity Institutional Wealth Services ( Fidelity ). 2 The online survey was conducted from May 6 through June 30, 2014, and was administered by an independent third-party research firm not affiliated with Fidelity. Fidelity was identified as the study sponsor. More than 600 firms participated in the survey, of which 411 completed it and form the basis for the findings of this report. In this report, the terms RIA, RIA firms, and firms refer only to those RIA firms that participated in the study. Definition of terms For purposes of this report, marketing and business development are defined as follows: Key components of marketing are: 1) development and management of your firm s brand, identity, and messaging; and 2) programs, initiatives and tactics to nurture existing client and center of influence (COI) relationships and to generate additional leads for the business. Marketing tactics may include use of collateral, public relations, advertising, online presence, events, and client communications. Key components of business development are: 1) lead generation and development of new business sources; and 2) lead management and client acquisition. Types of activities include COI meetings, prospect meetings, and referral-oriented events. Note that business development does not include the basic relationship management and servicing associated with existing clients. A majority of firms reported a clear desire to improve their marketing and business development activities, and to be more disciplined in their approach to growth. Figure 1: Highlights of the study sample AUM CATEGORIES 81 FIRMS <$50M 60 FIRMS $50M to $99M 90 FIRMS $100M to $249M FIRMS $250M to $499M HIGH-PERFORMING FIRMS ACROSS ALL AUM CATEGORIES 53 FIRMS $500M to $999M 66 FIRMS $1B+ 2 Clearing and custody provided by National Financial Services LLC, an affiliate of Fidelity Brokerage Services LLC. 2

3 Section I: Key study findings 3 A majority of firms reported a clear desire to improve their marketing and business development activities, and to be more disciplined in their approach to growth. In some critical areas, a group of High-Performing Firms sheds light on best practices worth noting. Overall, the study found that firms: 1 Focus on growth: Growth, particularly organic growth, is an imperative for the vast majority of RIAs. In addition, hiring advisors with existing books (i.e., tuckins ) is of interest for most firms. 2 Recognize 3 Lack weaknesses: Improving marketing and business development efforts is a top strategic initiative for more firms than any other initiative likely because very few firms (5%) feel advanced when it comes to these important functions. roadmaps: Most RIAs are operating without clear marketing roadmaps to guide them only 31% have written marketing plans, a percentage that is essentially unchanged since The 2011 Fidelity RIA Benchmarking Study. 4 4 Need 5 May 6 Need 7 Miss better firm stories: Only 56% 5 believe that they have a clearly defined and differentiated firm story, and less than half 6 agree their stories are tailored based on their target clients needs. When it comes to telling their stories consistently, High- Performing Firms appear to be leading the way. be showing improved client mix: Firms with a target client profile reported that 90% of clients gained in 2013 fit this description, versus only 75% of clients on board prior to enhanced referral processes: Referrals from existing clients and COIs are important channels of growth for RIAs. However, less than one-third of firms rate their referral processes as advanced or even fairly strong. High-Performing Firms appear to have more developed COI programs than do their peers. feedback opportunities: The vast majority of firms reported that providing highquality service is the best way to encourage client referrals. However, only 23% of RIAs had surveyed their clients for feedback in the last three years, and only 13% of firms had established client advisory boards. These may represent missed opportunities. 8 Have 9 Can new marketing channels to explore: Events, collateral, and communications are the most effective and widely used marketing activities across firms today. Expanded PR and social media tactics may be areas of opportunity in the future. learn from High-Performing Firms: High-Performing Firms achieve higher rates of growth in a balanced fashion, through better asset retention as well as flows from existing and new clients. Most RIAs are operating without clear marketing roadmaps to guide them. 3 All statistics quoted are from the study unless otherwise indicated. 4 The 2011 Fidelity RIA Benchmarking Study was conducted between August 1 and September 26, 2011, in collaboration with an independent third-party research firm unaffiliated with Fidelity Investments. 375 firms participated. The experiences of the RIAs who responded to the study may not be representative of the experiences of other RIAs and are not an indication of future success. 5 Percentage of firms that selected a 6 or a 7 on a scale from 1 to 7, where 1 = Strongly Disagree and 7 = Strongly Agree. 6 Ibid. 3

4 Section II: Lessons from High-Performing Firms As in past Fidelity benchmarking studies, a group of High-Performing Firms has been identified as having outperformed other firms when it comes to core financial metrics (see Figure 2 for a definition and qualifying criteria). We examine these firms here to see what makes them different and the lessons they may provide for other RIAs. Figure 2: Qualifying criteria for High-Performing Firms First Criterion Pass eligibility screen Practice established prior to December 31, 2010 HIGH-PERFORMING FIRMS Assets under management (AUM) of $50 million or more as of December 31, 2010 Second Criterion Rank in the top 25% of eligible survey respondents, based on a composite ranking across three areas Two or more full-time equivalents (FTEs) as of December 31, 2013 ALL OTHER ELIGIBLE FIRMS Not more than 25% of new AUM generated from M&A activity in any year Three-year AUM compound annual growth rate (CAGR) as of December 31, 2013 Earnings before owners compensation (EBOC) margin for the calendar year ending December 31, 2013 Revenue per FTE for the calendar year ending December 31, 100 $ $ % HIGH-PERFORMING FIRMS 50 High-Performing Firms significantly outperform their peers 40 $321, Based on the definition, we know that High-Performing Firms have demonstrated excellence in the areas of growth, profitability, HIGH-PERFORMING ALL OTHER 20 and productivity. Figure 3, Figure 4, and Figure 5 show by ALL just OTHER how much ELIGIBLE High-Performing FIRMS 8.8% FIRMS ELIGIBLE FIRMS Firms outperform All Other Eligible Firms % % 0 5.6% $245, $ $ Figure 3: Growth comparison, Figure 4: Profitability comparison, Figure 5: Productivity comparison, AUM CAGR* (median) 2013 EBOC* margin (median) 2013 Revenue per FTE* (median) 17% 17% 66% $321,000 $245,000 $ $ HIGH-PERFORMING FIRMS % 48% $321, ALL OTHER ELIGIBLE 60 FIRMS $245, *FTE = Full-Time 20 Equivalent 8.8% HIGH-PERFORMING ALL OTHER % 7.1% FIRMS ELIGIBLE FIRMS 7.1% % 10 Source: The 2014 Fidelity RIA 5.5% Benchmarking HIGH-PERFORMING ALL OTHER 5.5% 5.6% 0 5.6% 4.7% FIRMS ELIGIBLE FIRMS 0 Study *CAGR = Compound Annual Growth Rate 17% *EBOC = Earnings Before Owners Compensation 90 Source: The 2014 Fidelity RIA 80 Benchmarking Study. Source: The 2014 Fidelity RIA 11% Benchmarking Study % HIGH-PERFORMING 48% ALL OTHER % FIRMS ELIGIBLE FIRMS 7.1% % 5.6% Based on the criteria in Figure 2, All Other Eligible Firms = all study respondents that passed 40 the eligibility screen in the first criterion but did not rank in the top 25% of the composite ranking in the second criterion % 7.1% 6.0% % 5.6% 4.7% 100

5 What types of firms are High-Performing Firms? The definition is carefully constructed so that firm size is not necessarily a factor; and in fact, High- Performing Firms come in all sizes. See Figure 6 for a comparison of basic business metrics for High-Performing Firms versus All Other Eligible Firms. High-Performing Firms have strength across the board High-Performing Firms excel in a number of different areas. When it comes to marketing and business development, they are more likely to: Figure 6: Comparison of attributes (median 2013 data) HIGH-PERFORMING FIRMS ALL OTHER ELIGIBLE FIRMS Number of clients Assets under management $425M $349M Revenue $2.6M $2.2M Number of FTEs 8 9 Number of owners 3 3 Revenue per client $9,342 $8,697 Total clients per advisor Revenue per advisor $825K $588K 1. Tell their firm story consistently. High-Performing Firms are far more likely to agree that all their client- and prospect-facing associates describe their firm and its key differentiators in the same way (see Figure 7). This can make a difference in helping firms stand out in an increasingly crowded marketplace. Perhaps as a result, High-Performing Firms are also more likely to agree that the majority of their clients know the fundamentals of their firm story i.e., what they do well and why they should be the firm of choice. This can help clients become advocates for the firm and generate high-quality referrals. Figure 7: Percentage of firms telling their firm story consistently 8 2. Communicate their target client profiles. High-Performing Firms are almost twice as likely to agree that they effectively describe their target client profiles to both clients and COIs (see Figure 8). This can help clients and COIs identify the most appropriate referrals, which can lead to a higher percentage of clients fitting target client profiles over time. Figure 8: Percentage of firms that effectively communicate their target client profile to their clients and COIs 9 30% 16% 3. Establish stronger COI referral processes. High-Performing Firms are far more likely to say their COI referral processes are advanced (see Figure 9). This includes activities such as always thanking sources for referrals and working to understand their COIs target client profiles so they can send reciprocal referrals. In addition, they are more likely to review COI data (e.g., status of referrals) at least monthly, and keep data up to date. Figure 9: Percentage of firms that consider their COI referral processes advanced 17% 4% 51% 30% HIGH-PERFORMING FIRMS ALL OTHER ELIGIBLE FIRMS Source: The 2014 Fidelity RIA Benchmarking Study. HIGH-PERFORMING FIRMS ALL OTHER ELIGIBLE FIRMS HIGH-PERFORMING FIRMS ALL OTHER ELIGIBLE FIRMS Source: The 2014 Fidelity RIA Benchmarking Study. 8 Percentage of firms that selected a 6 or a 7 on a scale from 1 to 7, where 1 = Strongly Disagree and 7 = Strongly Agree. 9 Ibid Source: The 2014 Fidelity RIA Benchmarking Study

6 4. Close business faster. Far more High-Performing Firms are closing business in two or fewer meetings (see Figure 10), a finding consistent with results from prior years studies. Interestingly, it appears this higher level of efficiency in the sales process is accomplished without straying far from the firms' target client profiles, because they have a higher percentage of existing clients who meet their target profiles. Figure 10: Percentage of firms that close business in two or fewer meetings 87% 60% HIGH-PERFORMING FIRMS ALL OTHER ELIGIBLE FIRMS Source: The 2014 Fidelity RIA Benchmarking Study Manage talent proactively, and hire selectively. High-Performing Firms are approximately twice as likely to be pursuing strategic initiatives to develop talent-management plans or to change firm compensation plans signs that they may be more proactive in motivating, training, and retaining employees. They are also less likely to see internal skill gaps as an issue and, 100 possibly as a result, are less likely to be 80 hiring business development officers 60 (see Figure 11). Figure 11: Percentage of firms not 20 planning to hire a business development officer 81% 66% HIGH-PERFORMING FIRMS ALL OTHER ELIGIBLE FIRMS Source: The 2014 Fidelity RIA Benchmarking Study Drive incremental growth in a balanced fashion. High-Performing Firms are growing AUM at a significantly higher rate than others. Through examining the individual drivers of growth, it becomes clear that no single driver accounts for the bulk of the difference (see Figure 12). These firms are stronger in every area, and the sum of these incremental advantages adds up to a sizable overall difference. Across these drivers, High- Performing Firms clearly demonstrate strength across the board. These firms are stronger in every area, and the sum of these incremental advantages adds up to a sizable overall difference. Figure 12: Driving incremental growth in a balanced fashion SOURCES OF AUM CHANGE (MEAN) HIGH- PERFORMING FIRMS ALL OTHER ELIGIBLE FIRMS DIFFERENCE New Assets from Existing Clients 6.5% 5.4% +1.0% Assets Withdrawn by Existing Clients 3.0% 4.4% +1.4% New Assets from New Clients 9.9% 7.9% +2.0% Assets Withdrawn by Departing Clients 1.8% 3.8% +2.0% Net Asset Change from M&A 0.5% 0.1% +0.4% Market Performance 8.4% 7.1% +1.3% Total 3-year CAGR ( ) 20% 12% +8% Note: Sum of percentages may not match totals due to rounding. 6

7 Section III: Marketing and business development landscape Given the clear focus on growth for most firms, it is not surprising that improving marketing and business development efforts was the top strategic initiative mentioned for 2014 (see Figure 13). As firms strive to improve their practice in these areas, it is important to consider their key channels of growth: clients, centers of influence, and prospects. With these in mind, RIAs can then focus on four pillars of a strong marketing and business development approach (see Figure 14). In this section, we explore how well RIAs are doing in each area, and provide actions for your firm to consider as you think about optimizing marketing and business development to fuel the growth of your firm. Figure 13: Top strategic initiatives Percentage of firms 32% 40% 38% 47% 75% Invest in new or existing technology Improve the firm s marketing and business development efforts Improve strategic business planning and execution Improve client satisfaction Develop or enhance a succession plan Given the clear focus on growth for most firms, it is not surprising that improving marketing and business development efforts was the top strategic initiative mentioned for Figure 14: Marketing and business development framework CLIENTS CENTERS OF INFLUENCE PROSPECTS PLAN You have a disciplined process and plan in place. STORY Your story is consistent and differentiates your practice. RELATIONSHIP QUALITY You know your relationships and build promoters. COMMUNICATIONS PROGRAM You create awareness through proactive programs. Adapted from Building an Action Plan to Drive Growth within Your Practice: A Business Development and Marketing Planning Toolkit. Fidelity Investments. 7

8 Create a plan The first key marketing and business development pillar involves planning. Just as many RIAs believe that written financial plans are the foundation of sound wealth management, so too is a written marketing and business development plan central to an effective growth strategy. Yet many RIAs don t have one in place to help guide their actions which is what we found in The 2011 Fidelity RIA Benchmarking Study as well. Although written plans are not widely adopted, firms have a number of goals regarding marketing and business development that they hope to achieve primarily attracting new prospects and cultivating referrals from clients and COIs (see Figure 15). Unfortunately, measurement of success in achieving goals is inconsistent. Only 20% of firms reported being extremely proficient or very proficient in this area. At most, 37% of firms use a customer relationship management (CRM) system or some other system to track key metrics regarding marketing and business development (see Figure 16), and 27% of firms are not using any metrics to measure success. Given the importance of measurement in managing a process effectively, better systems and discipline in measuring progress could help many firms in their quest for growth. Figure 15: Relative importance of marketing and business development goals Importance percentage points 15% 16% 17% 25% 25% 3% Promote new offerings Establish a clear brand and reputation in the marketplace Deepen relationships and share of wallet with existing clients Develop Center of Influence (COI) relationships and referrals Cultivate referrals from existing clients Attract new prospects to the firm Note: Percentages do not sum to 100% due to rounding. Figure 16: Status of reporting capabilities Percentage of firms 37% 32% 30% 35% 32% 33% 35% 40% 26% 33% 27% 39% Reasons for not having a written plan: 41% Have a plan but it is not written down 22% Not necessary to achieve goals 19% Lack the expertise 18% Lack the time Sources of all new clients (where each client came from) Referrals from existing clients Sources of all AUM changes (new assets from new clients, market performance) Referrals from COIs 31% and 29% Percentage of RIAs who had a written marketing plan in 2014 and in % 19% 49% 30% 22% 48% 29% 17% 54% 26% 33% 41% 13% 25% 63% Client segmentation (any kind) Prospects not retained as clients Prospects not referred Pipeline reports (potential business/ $ in sales process) Closing ratio TRACKING WITH CRM/OTHER TRACKING MANUALLY NOT TRACKING Note: Percentages may not sum to 100% due to rounding.

9 Actions to consider: 1 Create 2 Ensure 3 Establish a formal, written marketing plan that is aligned with your firm s business strategy and growth goals. Engaging a third-party resource can help your firm create your plan if none exists today. that your plan includes clear roles and responsibilities, deadlines, and goals. Aligning an element of compensation with performance versus the plan can help keep your team motivated and focused. metrics, track them in CRM, and measure your progress on a regular basis. Holding periodic meetings to review results can provide a forum to share best practices, successes, and areas for improvement. Resources to get started: 10 Building an Action Plan to Drive Growth Within Your Practice, A Business Development and Marketing Planning Toolkit Creating a Strategic Plan to Chart the Course for Your Firm s Future, A Strategic Planning Toolkit Develop your story The second key marketing and business development pillar involves developing a clear, easy to repeat, and differentiated firm story that is used consistently in all communications and by all employees. Our findings show that work is needed on this front. The majority of RIA firms are in agreement about what the top differentiators of their firms are namely, a personal, high-touch approach to client service and the knowledge, experience, and commitment of their firm s associates (see Figure 17). But therein lies a challenge if most firms point to the same differentiators, how can they make their stories really stand out and resonate with their existing and potential clients? Being able to clearly articulate the value they provide and substantiate these claims with client anecdotes or other third-party validation can help firms compose a more compelling narrative about their firm. Figure 17: Important firm differentiators Percentage of firms that ranked each differentiator a 6 or a 7* 45% 34% Investment performance 56% Percentage of RIAs who agreed that they have a clearly defined story that differentiates their firm from others 11 84% 77% 68% 63% Personal, high-touch approach to client service Knowledge, experience, and commitment of firm s associates Investment philosophy or expertise Comprehensive nature of planning and wealth management services offered Depth of other planning-oriented expertise 27% Depth of expertise serving retirement plans 23% Depth of knowledge serving specific industry vertical or client segment * On a scale from 1 to 7, where 1 = Not At All Important and 7 = Extremely Important. 43% Percentage of RIAs who agreed that their story is tailored to the specific needs of target clients To gain access to these resources, please contact your Fidelity representative. 11 Percentage of firms that selected a 6 or a 7 on a scale from 1 to 7, where 1 = Strongly Disagree and 7 = Strongly Agree. 12 Ibid. 9

10 Many RIAs also appear challenged when it comes to communicating their stories effectively (see Figure 18). Fewer than half agreed that their story is consistently shared in marketing materials, and only 39% agreed that their client- and prospect-facing associates tell their story in a consistent manner. Perhaps this is why relatively few firms agreed that the majority of their clients and COIs know their firm story making it harder for them to effectively communicate on behalf of firms. Figure 18: Firm story communication Percentage of firms that ranked each statement a 6 or a 7* 56% * On a scale from 1 to 7, where 1 = Strongly Disagree and 7 = Strongly Agree. Our firm has a clearly defined firm story that explains what differentiates us from other firms Our firm story is consistently 46% reflected in all our marketing materials Our firm story is specifically tailored 43% to the needs of our target client profile The majority of our clients know the 41% fundamentals of our firm story All client- and prospect-facing associates tell 39% our firm story consistently 37% Our key COIs know the fundamentals of our firm story Actions to consider: 1 Develop 2 Involve 3 Incorporate a clear, differentiated, and easy-to-repeat firm story. Define what you do well, what your clients truly value, and the aspects of your business you feel are real differentiators then substantiate with anecdotes and data. Audit your existing materials and review competitors materials in the process. your associates as you create the story to include their perspectives and get their buy-in. Train your associates to tell the firm story in a consistent and passionate manner. Role playing can be an effective tactic. your firm story into all marketing communications. Third-party resources can provide objectivity, creativity, and speed to market. Resources to get started: 13 Creating a Consistent Story for Clients and Prospects, A Story Development Guide Developing and Reinforcing Your Messaging Pillars White Paper Consistency of Messaging and Materials Worksheet Enhance relationship quality The third key marketing and business development pillar involves improving the quality of relationships with clients, prospects, and COIs by deeply understanding their needs. Accomplishing this can involve the following key steps. Understand your client base Understanding basic metrics about the clients you serve today, and identifying the types of clients you most want to target, are important first steps. Our study shows that: Clients with less than $500,000 represent 40% of total clients, but only 18% of AUM (see Figure 19). In contrast, clients with $3 million or more represent approximately 16% of clients, but 35% of AUM (see Figure 19). Almost 75% of clients are 50 years old or older, and account for over 81% of AUM (see Figure 20). These numbers are unchanged since our 2011 study, and indicate that many firms have not made significant progress in attracting younger clients. Almost 80% of RIAs report having a target client profile, a number that has not changed significantly since our 2011 study. For firms with a defined profile, 75% of their existing clients (acquired before 2013) met that profile, whereas 90% of new clients (acquired during 2013) did which indicates that firms may be showing more discipline in adhering to their target profile. 13 To gain access to these resources, please contact your Fidelity representative. 10

11 Generate referrals from clients A successful client referral process could be the biggest tool in their arsenal, yet many RIAs are struggling to create an efficient client referral engine. After analyzing actual referral results, it is clear there is still a significant opportunity for improvement in referral processes. Firms reported that approximately 50% of their clients are willing to make referrals, but only 10% have made any referrals in the past year, and just 4% have made more than one. Overall, client referrals accounted for over half of firms new clients (52%). To help improve these numbers, there are a few tactics that firms may want to explore. For example, the vast majority of RIAs (85%) cited providing highquality service as the most effective way to generate client referrals (see Figure 21). Yet few firms are measuring their performance in providing that level of service. Just 23% of RIA firms said they had conducted a client satisfaction survey within the past three years. This percentage has remained virtually unchanged since our 2011 study. Another way to collect ongoing client feedback is to establish a client advisory board, but, similarly, very few firms (13%) reported doing so. Only 14% 14 of RIAs agreed that they have analyzed their client base to focus on the clients most likely to make referrals, and only 30% characterized their client referral processes as advanced or fairly strong. Figure 19: Breakdown of clients and AUM by client size Percentage of clients and AUM 40% <$500K 18% $500K $999K $1.0M $2.9M $3.0M $4.9M Percentage of clients Percentage of AUM 22% 23% 29% 22% 18% 8% 13% 8% Note: Percentages may not sum to 100% due to rounding. Figure 20: Breakdown of clients and AUM by client age Percentage of clients and AUM 5% 3% 21% 16% 53% 56% < Note: Percentages may not sum to 100% due to rounding. $5.0M+ Percentage of clients Percentage of AUM 22% 25% Figure 21: Effectiveness of client referral strategies Percentage of firms that ranked each statement a 6 or a 7* 27% 25% 23% 22% Conducting referral-focused events 85% Providing updates regarding referrals given Sharing case studies or other materials about the types of clients you have helped 12% Sending referral-oriented communications 5% Engaging via social media Discussing referrals in client meetings and calls * On a scale from 1 to 7, where 1 = Not Effective and 7 = Highly Effective. Providing high-quality service to clients 14 Percentage of firms that selected a 6 or a 7 on a scale from 1 to 7, where 1 = Strongly Disagree and 7 = Strongly Agree. 11

12 Generate referrals from centers of influence There is also significant room for improvement when it comes to getting the most from relationships with COIs. The vast majority of COIs were attorneys (cited by 88% of firms) and CPAs (86% of firms), with local business leaders a distant third (42%). In the past year, only 40% of firms COIs made a referral of any kind, and only 13% made more than one referral. Overall, approximately 23% of new clients, on average, came to firms via COIs. There are a number of steps that RIAs could take to shore up their COI networks and increase their effectiveness. For example, only 20% of firms agreed that they had researched and identified key COIs, and only 13% of firms agreed that they had a clear plan for proactive outreach to drive COI referrals (see Figure 22). 25% Percentage of RIAs who rated their COI referral process as advanced or fairly strong Figure 22: Client and COI referral activities Percentage of firms that ranked each statement a 6 or a 7* 14% 22% We work to understand our COIs target clients so we can refer to them 21% We follow up regularly with COIs to stay engaged 20% We have researched and identified key COIs 18% We effectively communicate our target client profile to clients and COIs We have analyzed our client base to enable us to focus on the clients most likely to refer business to us 13% We have a clear plan for proactive outreach to COIs to drive referrals * On a scale from 1 to 7, where 1 = Strongly Disagree and 7 = Strongly Agree. 13% Percentage of COIs who referred more than one prospect Generate new business from prospects Perhaps not surprisingly, given the findings above, the processes RIAs use to manage prospects not referred by clients or COIs also could benefit from greater planning and execution. When evaluating their lead management processes and business development functions more broadly, many firms recognized key areas that could be improved. For example, only 13% 15 of RIAs agree they are conducting win/loss analyses to understand what they did well (or not so well) in the sales process, and only 24% 15 are using CRM to track leads and drive efficient follow-up. With more focus on processes and training in these areas, firms could potentially see improvement in closing business already in their pipeline. 25% Percentage of RIAs new clients who came directly to firms without being referred 19% Percentage of RIAs who rated their process for managing prospects not referred as advanced or fairly strong 36% Percentage of RIAs who feel their business development people have the skills and training needed to succeed Percentage of firms that selected a 6 or a 7 on a scale from 1 to 7, where 1 = Strongly Disagree and 7 = Strongly Agree. 16 Ibid. 12

13 Actions to consider: 1 Track 2 Survey 3 Make 4 Train 5 Hone where all new business comes from, especially referrals. This can help you understand where you are most successful. your clients to help understand their experiences with your firm, their willingness to make referrals, and their referral history. it easier for clients to spread the word about your firm. Providing them with materials they can share, or sponsoring events where they can attend with family and friends, can help increase referrals. associates on best practices in driving referrals. Hold meetings to discuss approaches and encourage staff to learn from each other. Role playing can be effective. your COI messaging and materials to demonstrate your commitment to shared success. Take time to help COIs learn your firm story and target client profile, and take time to learn theirs. Resources to get started: 17 A Guide to Growing Your Business Through Centers of Influence and Strategic Alliance Marketing How to Ignite Powerful Growth: Client and Center-of-Influence Referrals, A Profiles in Growth White Paper Referral-EDGE SM : A dynamic business development tool designed to help you execute your growth strategy Optimize your communications program A strong communications program is the fourth pillar of a sound marketing and business development strategy. It can help you share your firm story with clients, prospects, and COIs, and strengthen those relationships through consistent, tailored, and effective outreach. No one size fits all, however, and each program should be developed to suit the particular needs and growth goals of your firm. RIAs are employing a range of activities and tactics to communicate with their different audiences, and experiencing success with some more than others. Explanation of terms Advisors were asked a series of questions related to their firm s marketing activities. For convenience, names of activities are abbreviated in the following pages. Examples include: Communications (e.g., newsletters, direct mail campaigns) Collateral (e.g., brochures, pitch books) Events (e.g., client appreciation, educational, referral) Digital marketing and advertising excluding social media (e.g., online ads, Web site, , blogs) Social media (e.g., Twitter, Facebook, LinkedIn, Pinterest, Google+ ) Traditional advertising (e.g., signage, print, radio, TV, sponsorships) PR (e.g., radio or TV appearances, news releases, bylines) 17 To gain access to these resources, please contact your Fidelity representative. 13

14 Evaluate the effectiveness of marketing activities Many RIAs are employing similar outreach activities. Communications, collateral, events, and digital marketing are used by the majority (see Figure 23), while social media, traditional advertising, and PR are used by fewer than half of firms. As expected, the number of activities employed by each firm is correlated with firm size, presumably because larger firms typically have more resources. To engage in these various activities, many RIAs are outsourcing some of the work to third-party firms. Digital marketing is most likely to be outsourced (67% of firms outsource at least some of this work), whereas events and social media are more likely to be handled internally (with only 18% and 20% of firms, respectively, outsourcing any of this work). As firms evaluate their marketing mix, certain activities rise to the top in terms of their effectiveness in generating new business either from new clients or existing clients. Events, for example, was rated as the most effective of all the activities (see Figure 24), followed by collateral and communications. Given this level of effectiveness, the 37% of firms that do not currently organize events may want to consider adding this activity to their marketing and business development strategy. PR also may be an activity for more firms to investigate, given that it was Figure 23: Use of marketing activities Percentage of firms 76% 72% 63% 60% 43% Communications Collateral Events Digital marketing and advertising Social media excluding social media 37% Traditional advertising 27% Figure 24: Marketing activities overall effectiveness, usage, budget, and targeting HIGH Relative effectiveness LOW PR 4% Social Media 4% 27% Events 19% 18% 17% Digital Marketing Traditional Advertising 11% Legend: PR Communications 0% 25% 50% 75% 100% Percentage of firms using Collateral Primary target = Clients Primary target = Prospects Note: Size of circle and noted percentage correspond to mean percentage of marketing budget spent on each activity. 14

15 Figure 25: Usage of marketing tactics Percentage of firms rated similarly to digital marketing and communications in terms of its effectiveness, yet far fewer firms are using it. For the firms that do engage in PR, they have not invested a significant percentage of their budget on it, yet appear to be having some success (see Figure 24). 72% 44% 35% 22% 20% 18% 16% Social media and traditional advertising were given more mixed reviews. In the case of social media, this could be due to unfamiliarity with the various platforms and to some of the regulatory concerns that their use may present. In general, marketing spend tends to be correlated with the perceived effectiveness of each activity in generating new business. Possible exceptions to this pattern may be PR and traditional advertising. As noted above, PR may be an area for firms to consider increasing investment, given the relative effectiveness of this activity. On the flip side, firms may want to reconsider what they spend on traditional advertising, given its limited relative effectiveness. Newsletters Pitch books LinkedIn Blogs Facebook Twitter Video Explore various marketing tactics Digging deeper still, firms were asked about the specific marketing tactics they employ and the effectiveness of each. Newsletters are the most widely used tactic, employed by 72% of firms (see Figure 25). Almost 90% of these firms provide newsletters on a monthly or quarterly basis. Several of the other tactics involve far more frequent delivery of content (e.g., daily or weekly), which may explain some of the difference in usage rates. Video is the tactic least utilized. As more RIAs target younger clients, video may be a useful tool to reach this set of investors. In terms of effectiveness, very few of these tactics were perceived to be highly effective with clients, COIs, or prospects (see Figure 26). Pitch books (51%) and newsletters (37%) rated highest in this regard with prospects and clients, respectively. When considering moderate levels of effectiveness, however, several tactics appear to show more promise. It appears that with limited usage and at least moderate effectiveness for several tactics, there is an opportunity for many firms to reevaluate their approaches. Figure 26: Effectiveness of marketing tactics Percentage of firms that rated each marketing tactic as highly or moderately effective Newsletters Pitch books LinkedIn Blogs Facebook Twitter Video 51% 40% 37% Clients 49% 43% 35% 50% 46% 51% 30% 36% 39% 41% 31% 31% 11% 12% 17% 21% 21% 8% 12% 12% 7% 9% 9% 13% 8% 5% 7% 2% 5% 2% 2% COIs Prospects Clients COIs Prospects Clients COIs Prospects Clients COIs Prospects Clients COIs Prospects Clients COIs 16% 5% 14% Prospects 40% Clients 23% 20% 9% COIs 33% Prospects High Moderate 15

16 Actions to consider: 1 Audit your current marketing activities to evaluate their effectiveness, and analyze the time and money spent relative to results achieved. Specify goals for each activity up front. 2 Further incorporate events or PR into your plan, depending on your current approach. 3 Review the content you provide to clients, COIs, and prospects to ensure that it will resonate with each audience. Look at each segment you serve carefully, and try to identify opportunities to increase effectiveness by tailoring messages. 4 Capture communication preferences in terms of content, medium, and frequency in a CRM system. Establish processes to ensure that these preferences guide execution. Resources to get started: 18 Creating the Best Communications Program for Your Clients and Prospects White Paper Hosting Events to Help Strengthen and Grow Your Business Guide Unleash the Power of Your Web Site White Paper Section IV: Opportunities, challenges, and outlook As RIAs seek to optimize their marketing and business development approach, they have pinpointed a number of opportunities, challenges, and initiatives. CRM workflows and core marketing programs are top opportunities Over half the firms in our study cited better use of CRM and more investment in core marketing programs as top opportunities. However, it is interesting to note that no single opportunity stood out from the rest (see Figure 27). Resource constraints are the biggest challenge In terms of challenges, there was far more consensus. The most significant barrier to optimizing marketing and business development strategies was internal resource constraints, by a wide margin (see Figure 28). Considering that many firms do not outsource their marketing activities, transitioning some work to third parties could potentially alleviate some of these constraints. Figure 27: Opportunities to optimize marketing and business development Percentage of firms that ranked each 1st, 2nd, or 3rd 34% 33% Figure 28: Challenges in optimizing marketing and business development Percentage of firms that ranked each 1st, 2nd, or 3rd 46% 56% 55% Creating documented, repeatable processes and workflows using CRM Investing more in core marketing programs Creating more of a growth-oriented culture Joining or deepening engagement with a custodian s referral program Engaging third parties to help with marketing (custodians, consultants, outsourcers) Internal resource constraints (available 79% people/time to focus on the processes) Internal skill constraints (lack of sales and 45% marketing capabilities on the team) 43% Lack of focus on growth as a priority 29% Willingness to spend (lack of available budget) 24% Lack of access to prospects fitting your firm s target client profile 18 To gain access to these resources, please contact your Fidelity representative. 16

17 Majority of firms working on marketing plans Figure 29: Top initiatives Percentage of firms So, where are firms allocating resources, given these opportunities and challenges? Working on their marketing plan, client referral strategy, and sales process are the three top initiatives to which most firms are currently devoting resources or plan to devote resources in the next 12 months (see Figure 29). 74% 23% 51% 70% 67% 64% 27% 19% 20% 44% 47% 44% Will start devoting resources in the next 12 months Currently devoting resources 59% 58% 54% 12% 15% 22% 47% 42% 32% Putting resources and investment behind these efforts will be a key measure of how serious RIAs are about improving their marketing and business development capabilities. Currently, firms spend an average of 2% of total revenue on marketing and business development, not including the cost of any staff. One out of three RIAs (32%) plans to keep growing this spend consistently over the next five years, while another 39% will plan their marketing and business development spend such that it always keeps pace with business growth. Work on firm marketing plan Work on client referral strategy Improve sales process Work on COI strategy Note: Sum of percentages may not match totals due to rounding. Work on firm story Figure 30: Client, AUM, and revenue growth (median) HISTORICAL 3-YEAR CAGR ( ) Client Growth 8% 10% AUM Growth 15% 12% Revenue Growth 14% 12% Work on digital Work on social marketing strategy media strategy PROJECTED 4-YEAR CAGR ( ) The growth outlook is strong Recent historical AUM and revenue growth has been strong (see Figure 30), and the emphasis of many firms on enhancing their marketing and business development efforts should help them continue on this path as they work to achieve the continued growth projected over the next few years. Firms estimate AUM and revenue growth rates over the next three years will be lower than they were from 2010 to 2013, but still at 12% each year between 2014 and Client growth, however, is projected to be somewhat higher than historical rates, at 10% per year as compared with 8% per year from 2010 to Clearly, this indicates that firms are more optimistic about new client growth going forward. Taken together lower estimated AUM growth with higher estimated client growth this could imply smaller estimated average client sizes, decreased net flows from existing clients, or lower expected market returns. As noted earlier, the vast majority of firms focus is on organic growth. In the next five years, however, RIAs might also consider inorganic routes for example, hiring an advisor with an existing book of business or acquiring another firm. 80% Percentage of RIAs who would consider hiring an advisor with a book of business 66% Percentage of RIAs who would consider acquiring another firm 17

18 Section V: Conclusions Through this comprehensive look into the marketing and business development landscape, a number of dichotomies have emerged. 1 Organic growth is a clear priority for firms, yet most acknowledge that their marketing and business development practices are not as robust as they would like. This may make it more challenging for them to attain their growth goals. 2 Potentially to address this gap, the top priority of most RIAs is to improve their marketing and business development efforts. However, many firms do not have a written plan to guide them, and few are well positioned to measure their success. 3 A critical element of a strong marketing and business development approach is generating referrals from clients and COIs. Yet, many RIAs state that their processes around referrals are not strong. 4 The majority of firms feel that providing high-quality service to clients is the best way to encourage referrals. However, most firms do not survey their clients to understand how satisfied they are or how likely they are to refer their firm to colleagues and friends. 5 Most firms consider their approach and people as key differentiators, yet many either lack a differentiated firm story that conveys their unique value to clients, prospects, and COIs, or have not communicated that story effectively. Many of these issues have been well recognized for some time, with several findings unchanged since our 2011 study. So, while firms are aware of these disconnects, they have not yet been able to break through in a significant way to resolve them. Unfortunately, there is no silver bullet to address any of these items. Each requires management support, a well-articulated strategy, and a concerted effort by all involved. There is good news as well. Our results show that RIAs have a clear understanding of their priorities and goals around growth, and that they finally may be starting to devote resources to address some of the most critical gaps. For firms that are not so far along, taking initial steps such as writing a solid plan, establishing and tracking success metrics, developing a firm story, and employing basic marketing activities may help them to better harness the power of their marketing and business development efforts. Firms that already have these foundational elements in place may choose to enhance their marketing and business development strategies by exploring the additional steps outlined in this paper, such as: Training staff and helping COIs and clients to consistently communicate their firm story Focusing on the most effective activities in their marketing mix, and experimenting with new ones that show promise Surveying their clients to better understand their needs and willingness to refer Engaging an outside coach, consultant, or marketing agency to enhance their plan, or even help execute it Taking some of these steps may make achieving the specific growth goals established by their firm more attainable, and help their marketing and business development approach to fire on all cylinders. 18

19 Figure 31: 2013 Financial metrics by firm size ALL FIRMS <$50M $50M $99M $100M $249M TOTAL AUM $250M $499M $500M $999M $1B+ Number of clients Assets under management (in millions) 1 $190 $29 $73 $152 $336 $722 $1,998 Total revenue (in thousands) 2 $1,284 $203 $585 $1,096 $2,190 $4,402 $9,587 Revenue bps Marketing and business development expense (in thousands) 2 $26.2 $5.6 $11.4 $20.7 $37.2 $87.2 $173.9 Marketing and business development expense (% of revenue) 2 2.0% 2.7% 1.9% 1.9% 1.7% 2.0% 1.8% Earnings before owners' compensation (EBOC) (in thousands) 2 $680 $117 $320 $608 $1,168 $2,097 $4,282 EBOC margin 2 53% 58% 55% 55% 53% 48% 45% Number of FTEs Number of owners Revenue per client 1 $6,327 $3,473 $4,850 $7,512 $7,880 $10,341 $14,630 Total clients per advisor Revenue per advisor (in thousands) 1 $460 $159 $314 $430 $598 $764 $986 1 Median figures 2 Mean figures Figure 32: Services offered and fee structure Percentage of firms OFFERING EACH SERVICE INCLUDED IN ASSET MANAGEMENT FEE ADDITIONAL PERCENTAGE OF ASSETS FLAT FEE/ RETAINER COMMISSION/ PRODUCT FEE Investment management 99% 94% 2% 2% 1% 0% Financial or retirement planning 92% 66% 2% 16% 0% 8% Tax planning 62% 41% 2% 11% 0% 8% Estate/trust planning 67% 47% 2% 12% 0% 6% Retirement plan servicing 70% 54% 5% 8% 1% 2% Risk/insurance planning 64% 39% 2% 9% 10% 3% Philanthropic planning 67% 52% 2% 10% 0% 3% Lifestyle management services 45% 32% 2% 7% 0% 4% Figure 33: Effective management fee in basis points by average client size (median) TOTAL AUM HOURLY RATE AVERAGE CLIENT SIZE ALL FIRMS <$50M $50M $99M $100M $249M $250M $499M $500M $999M $1B+ $500K $1M $2M $3M $5M $10M