Are advisors mismanaging their marketing machinery?

New research dissects data on client acquisition costs and efficiency of different strategies

Are advisors mismanaging their marketing machinery?

To produce a successful marketing strategy, advisors have to engage in a combination of actions that align with both their practice’s growth goals and their preferences as owners of the practice.

That was one of the main findings of a new study from Kitces Research, which drew from an online survey of more than 1,000 advisory practices that produced a total of 457 usable responses. The study focused on professionals who work for an organization that implemented investment products or offered financial advice; the practice had to have been started in 2020 or earlier, and actually served clients and earned revenue in 2021.

Based on the findings, acquiring a new client would cost a financial advisor a median of US$2,167, of which only 30% would be spent on direct marketing costs and 70% would be the cost of the advisor's time spent on marketing and sales activities.

As the cost of the advisor's time increases as the practice expands, the price increased to US$4,056 per customer for businesses with revenue of more than US$250,000.

Because the advisor's time increases in value as the practice expands, the mean advisory practice spent 7.1% of its 2021 revenue on time- and money-based marketing, rising to 8.8% for practices with more than US$1.5 million in sales.

An effective advisor marketing strategy brought in at least one new client for practices in 55% of the cases across the 25 distinct strategies the researchers looked at.

Compared to blogging and social media, which had success rates of only 20% and 39% custodial referral programs and client referrals both had success rates of 100%.

Successful strategies generated US$4,000 on average in their first year from each new client.

According to the survey, the typical practice spent US$1 on marketing to bring in US$1.20 in new client revenue, for a marketing efficiency metric of 1.2. While it was just 0.8 for practices with revenues of US$1.5 million or more, marketing efficiency was 2.5 for practices with less than US$250,000 in revenue.

The Kitces Research reveals dependence on strategies that are difficult to scale results in rising expenses and declining efficiency as practices expand, either because of the time advisors must devote to clients or the limited options for such strategies offer.

“These results highlight the importance of evolving marketing tactics as the practice grows,” the study said.

The study discovered that many counselors might not fully comprehend a tactic's costs and results. While SEO produced the highest return in new client revenue versus cost to implement among all the tactics studied, just 29% of practices said they deployed SEO. The second most efficient tactic, drip marketing was used by only 20% of practices. In contrast, 93% of practices said they rely on client referrals, even though the tactic doesn’t scale well, eats into an advisor’s valuable time, and can only be relied on so many times as each client will only refer an acquaintance so often.