Client Withdrawals Can Outpace Organic Growth if RIAs Aren’t Careful Enough
RIAs lose 2% to 5% of their AUM annually through client withdrawals, but they’re also averaging just 3% to 4% in organic growth each year.
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In-and-out assets are a headache for advisors.
RIAs lose 2% to 5% of assets under management each year through standard retirement withdrawals and one-time client distributions, according to a recent Cerulli report. That may not sound alarming until it’s compared with the industry’s average annual organic growth of just 3% to 4% from 2019 through 2024. In many cases, routine client retirement spending can wipe out much of a firm’s hard-earned growth. “To climb out of that hole, you not only need to backfill, you need to go out and get more,” said Stephen Caruso, director of wealth management at Cerulli. “Markets have been very kind to RIAs, but if every year, you’re relying on the market to fill the gaps, you’re not growing organically in a meaningful way.”
Business development isn’t easy, especially for smaller firms that lack the resources to hire dedicated staff and are already stretched thin serving existing clients. Still, there are several areas where firms can improve.
Tell Your Friends About Me
Client referrals remain the most significant source of new assets for RIAs. However, actually tapping into that source can be a little tricky without a plan. “You don’t want to come off like an insurance agent from the ‘70s — not to malign my dad who was a State Farm agent — but asking for referrals can be hard to do without being awkward,” said Michael Garry, founder of Yardley Wealth Management.
- However, such referrals account for 74% of new client acquisition. Just over half of RIAs proactively ask clients for them.
- Cerulli recommends clearly communicating your core strengths, target demographics and specialized services so existing clients know exactly who to send your way.
Referrals alone, however, aren’t enough. Garry said more than half of his firm’s new clients come from online searches, a result of a regular schedule of podcasts, blogs, social media posts and emails. “It’s been that way for years now,” he told Advisor Upside. “Referrals are fantastic … but it’s hard to grow organically with just them.”
He said his firm started using a digital marketing platform for advisors about a year and a half ago, and since then, that portion of business has developed quickly. “The podcast content, which we record every other week, gets repurposed onto our socials and emails,” he said. “It’s made it a lot easier.”
Circle of Influence. Advisors are also building their networks beyond lawyers and accountants, now connecting with business coaches and personal trainers. “I am doing a lot of experimental and non-traditional networking such as volunteering in my community and being involved in groups that match my interests,” said Leslie Rea, a CFP with AG Wealth Management.
