Watering the Garden: Getting the Organic Growth that RIAs Crave

It’s not just a premium on bananas grown without pesticides.

Organic growth is a pursuit unlike any other across the financial planning industry, from the smallest to the largest advisory firms. Even as the industry understandably leads with banners highlighting expansive services and investment performance, there is no getting around the ultimate focus on adding clients and assets to the books. But there might be some denial among RIAs when it comes to measuring the true success of and strategies for building organic growth.

“Organic growth in this industry is a tragic story,” said David DeVoe, founder of wealth management research firm DeVoe & Company. Per the company’s research, the industry’s average annual organic growth rate currently hovers around 4%, which is down from 9% as recently as 2017. “The RIA industry used to have faster organic growth, then complacency kicked in,” DeVoe said. “People ignored the fact that their assets are up because the stock market is up.”

Drainage Problems

The reason organic growth is so important boils down to simple economics of aging client bases transitioning into the decumulation phases. That moves assets, and the fees that come with them, out the door at rates that aren’t consistently offset by stock market performance. RIAs typically experience annual attrition of between 2% and 5% of their overall assets under management, excluding client departures, according to data from Cerulli Associates. The attrition is from multiple factors, including portfolio composition and client demographics. Without a dedicated business development emphasis, RIAs immediately put themselves at a disadvantage, as client assets naturally tend to decline over time, per Cerulli. 

Talk to just about any financial advisor and they can lay out a solid case for focusing on organic growth. And, often, they even have a list of ways to make it happen. The challenge, however, is getting the rubber to meet the road.

“Strong organic growth comes down to commitment, consistency and execution,” said David DeCelle, co-founder of WealthReach. “The channel for growth matters less than whether the firm stops talking about growth and starts doing the work every week,” he added.

Chuck Failla, founder of Sovereign Financial Group, acknowledges the awkwardness of asking existing clients for referrals, but he has a different approach. “I don’t ask for referrals, I ask clients to invite their friends to our social events,” he said. “Make sure you have an active series of events, and be generous with the education.”

When it comes to referrals, don’t be afraid to ask, per DeVoe’s research:

• Although 52% of new clients come from referrals, 88% of advisors admit they don’t ask clients for referrals.
• “The advice industry is underinvesting in growth,” DeVoe said, adding that RIAs allocate an average of just 1.5% of revenue to organic growth efforts. That percentage is down from 3% five years earlier. And it compares to the financial services industry in general, which spends about 7% of annual revenue on growth initiatives.

Planting Seeds

Jon Foster, president of Angeles Wealth Management, believes a “killer process” is the key to strong organic growth. “Be great at something, and be pretty good at everything else,” he said. “Then hire experienced, charismatic people to articulate your value proposition.”

In terms of secrets to organic growth success, Foster sees untapped opportunities in niche markets, as opposed to “come one, come all pitches.” Advisors, especially newcomers to the industry, have found much success by carving out client niches in professional areas such as airline pilots, dentists and emerging athletes as well as women with money in motion. “Limiting your clients doesn’t mean you are limiting your business, it means you are enhancing your credibility to that marketplace,” Foster said.  

Still, organic growth opportunities can often be found right in front of advisors without changing a thing. “When you lead a roundtable or take a board seat, you’re in the room with founders, coinvestors and other families who get to see how you work up close,” said Jason Tosh, founder and principal at Arena Private Wealth. “Those relationships have brought us our next deal and new client relationships no marketing campaign would have found,” he added.

The Right Growing Conditions. Cerulli’s research identifies several building blocks of organic growth, including referrals from existing clients, centers of influence, traditional prospecting, digital marketing and high-cost referral services. The cheapest and often most effective method of attracting new clients is good old-fashioned referrals from existing clients. A strong base of referrals can sustain a practice with a consistent drip of potential new clients. Educating advisors on strategies and implementing formal processes can help make this more programmatic than casual. 

David Barnard, founder and chief executive of Luminary, said the firms with the best organic growth strategies have stopped trying to be all things to all people — and that includes not trying to win with flashy investment management messages. “Firms that recognize wealth management is fundamentally changing from a product-oriented business to one centered around personalized advice are the ones that are winning today,” he said. “The firms that are most successful at building organic growth know who they serve, and they know what makes them stand out.”