Last year an overwhelming 86 per cent of advisors acquired more clients than they lost, with nearly half taking on over ten new clients or households, according to new findings from an industry survey.

Last year an overwhelming 86 per cent of advisors acquired more clients than they lost, with nearly half taking on over ten new clients or households, according to new findings from an industry survey.

Advisors are confident in their prospects for continued growth, with just under half saying that they aim to acquire more than 10 clients or households in 2013. On top of that, 30 per cent are targeting between seven and ten new clients, Russell Investments found in its latest Financial Professional Outlook survey of over 250 US advisors.

Additionally, respondents reported “fairly high” levels of client retention, the firm said, with over half (55 per cent) reporting that they lost between one and three clients in 2012 and just a quarter (26 per cent) losing four or more clients.

“Many advisors are finding it easier to acquire new clients than it was just six months ago, as investors’ willingness to participate in the market is bolstered by strong recent performance,” said Kevin Bishopp, director of practice management for Russell’s US advisor-sold business.

Bishopp also highlighted in the report that while it seems most advisors are finding it easier to attract new clients, there is a “finite universe of individual investors and a highly-competitive environment for advisors.” Advisors must deliver a “superior service” and relationship experience in order to differentiate themselves - not just a product or portfolio, he said. 

Client referrals: the top strategy  

An overwhelming 87 per cent of advisors feel optimistic about acquiring new clients and households this year, with most also saying that they plan to deploy the same strategies used in 2012 to source new clients. Client referrals emerged as the top acquisition strategy for 2013, as cited by 76 per cent. This was followed by referral prospecting through current clients (54 per cent), and professional networking (43 per cent).

Interestingly, the least popular sources were the use of a business advisory board (according to 2 per cent), advertising (6 per cent) and social media (7 per cent). While it is unlikely that social media would emerge as the number one strategy for acquiring new clients, the fact that only 7 per cent of respondents highlighted it as a top strategy is interesting given the level of noise being made about the role of social media in attracting new clients.

Last week, for example, Stacey Haefele, chief executive at HNW, Inc, told Family Wealth Report that social media channels “cannot be avoided in the long run by firms that are trying to grow through consumer acquisitions or through enhancing existing relationships, Haefele recently told this publication. “This is where consumers are - especially young ones,” she said (view article here).

“The root of success in generating referrals or proactively asking for them is in engagement with current clients,” Bishopp said. “Investors put trusted relationships at risk when making referrals, so it’s essential that a client understands their advisor’s offering and expertise, and believe that their family and friends can benefit from the excellent service that they receive themselves.”

But while 66 per cent of advisors believe referrals are the main reason prospective clients are interested in meeting them, “not every referral is a good referral,” and advisors cannot rely on the same strategies, Bishopp warned. As well as referrals, advisors cited dissatisfaction with the service of another advisor (65 per cent) and investors no longer wanting to manage their own money (42 per cent).

Aging client base and “generational risk”

According to figures from Cerulli Associates, only 5 per cent of all financial advisors in 2011 were under the age of 30, while 22 per cent were over the age of 60 and 33 per cent were between the ages of 50 and 59.

Bishopp emphasized the importance for advisors to consider the composition of their books of business when establishing an acquisition strategy, saying: “If an advisor has many clients in the decumulation phase of retirement, when income distributions begin to exceed investment returns, it can be important to seek out younger clients in their peak accumulation years to help maintain a sustainable business.”

A rule of thumb, he said, is that for every client over age 70, an advisor needs “one or two clients in their 50s who are accumulating at an increasing rate.”

On a final note, Bishopp mentioned the “generational risk” clients in retirement can pose - or the danger that an advisor may not retain the assets transferred to an investor’s beneficiaries, he explained.

“When thinking about client acquisition, it’s also important that advisors consider establishing relationships with their clients’ children and heirs,” said Bishopp. “If they can demonstrate their value and engage these emerging prospects, they can put themselves in a strong position to continue to manage inherited assets and drive referrals amongst the next generation of investors.”

Russell Investments is a global asset manager which is headquartered in Seattle, WA. The firm conducted its Financial Professional Outlook survey between May 2-17, 2013.