US wealth advisors realize that building a pipeline of new clients is essential, but they need to get a clear read on how much time they devote to this, says SEI.

With many financial advisor business owners hoping to sell up and retire in a decade’s time, the question arises as to whether they will get any enthusiastic buyers when that big day arrives. And if they haven’t devoted much time to building a pipeline of new clients, what they put up for sale won’t look attractive.

This is the argument of John Anderson, managing director of the practice management solutions team for the SEI Advisor Network, part of SEI, the investments and technology solutions firm. He says advisors need to plot how much time they really spend on day-to-day business and how much on marketing and prospecting for new clients. They may be shocked at what they find.

A useful exercise for advisors is to log in some form the amount of time spent on marketing and business development. There are a lot of project management software providers out there that may make it easier, he pointed out to Family Wealth Report in a recent interview.

Anderson’s comments follow evidence that advisors spend 13 per cent of their time on business development or new client acquisition (Cerulli, December 2012). As SEI argues, it is unrealistic to expect advisors to grow a business if they devote less than 15 per cent of their day focused on such expansion.

"Advisors have been very focused on running their businesses. What gets left out is marketing and business development, which is the business's lifeblood," Anderson said.

Pressures to outsource

Unsurprisingly, perhaps, SEI is a firm that looks to provide the kind of outsourced services it says will free up advisors to do more of what they should be doing – getting in front of clients. With regulatory and other costs showing no signs of falling, advisors must be ruthlessly honest with themselves about what they do well, and what they should outsource, Anderson said.  

On issues such as re-balancing a client's portfolio, Anderson said: “Sure it has to be done but are you the one that has to do it?” "This all helps them [advisors] in thinking, 'am I running a business or running a practice?'".

One of the issues facing the financial advisory community is that with a relative shortage of young people entering the sector, and with existing advisors looking to sell their business in a decade's time, the latter need to build up their operations so they are an attractive business proposition, he said.

"If you are running such a business then you need something to monetize," he said.

The debate over what functions to outsource, or in what quantities and for what purposes is not clear-cut. In early May this year, a study recommended that while revenue generation at corporate and independent RIAs is comparable, independent RIAs needed to ensure they have appropriate scale to be profitable. The study, commissioned by NFP Advisor Services Group and carried out by Aite Group, said that revenue for advisors with a corporate RIA averages $1.2 million, compared with $1.3 million at an independent RIA.

Building scale requires managers to focus as much as possible on getting in front of new clients – hence the significance of the findings cited by SEI’s Anderson.

In a related development this year that plays to the kind of themes Anderson talks about, United Capital released an interactive tool for advisors which is aimed at helping them understand which career path in the advisory industry suits them: their current arrangement, a lateral move, establishing their own RIA or joining a national partnership.