Strategic Growth Manifesto: Navigating the Shift in Financial Services Marketing

From Mergers and Acquisitions to Organic Growth: The Time to Invest is Now

In the past decade, the financial services industry has thrived on a strategy centered around mergers and acquisitions (M&A), fueled by historically low interest rates and abundant capital. However, the landscape is shifting dramatically. The next ten years will not mirror the last; the focus is moving towards organic growth through strategic marketing and client acquisition. This manifesto highlights why now is the pivotal moment to invest in your growth and how our tools can catalyze this transformation.

Understanding the Past to Capitalize on the Future

Over the last decade, firms have grown by buying competitors and consolidating assets. This era of M&A was marked by easy capital and high valuations, but as interest rates rise and economic conditions tighten, the sustainability of growth through acquisition diminishes. The future lies in organic growth—building client relationships one at a time, which has become both a challenge and an opportunity in today’s market.

Why Invest in Organic Growth Now?

1. Shift in Market Dynamics: As the easy money for M&A dries up, the competitive advantage shifts to firms that can efficiently acquire and serve new clients organically.

2. High Lifetime Value of Clients: Consider the example of a 45-year-old acquiring $2 million in assets. Over the course of an advisory relationship, this client can generate over $600,000 in value for the firm, considering fee structures and the potential for asset growth over time. This underscores the immense value of investing in new client acquisition today. As counter-intuitive as it is, spending upwards of $10,000 to acquire this client is cheap. With an LTV/CAC ratio close to 60:1 advisors have unprecedented unit economics. Advisors who have a grasp on their unit economics will outpace their competition.

3. Demographic Tailwinds: With 7 million more Americans aged 45-60 than those aged 60-75, a significant new client base is emerging. These individuals are in their peak earning years, increasingly seeking advice for wealth accumulation and retirement planning.

Strategic Imperatives for Embracing Organic Growth

• Leverage Cost-Efficient Marketing: Now, more than ever, the cost of acquiring new clients is significantly lower compared to the potential return they offer. This economic leverage is critical in a market where organic growth will become the primary mode of expansion.

• Educate on the Value of Investment: Highlighting the substantial economic benefits of acquiring younger clients, such as the 45-year-old with $2 million in assets, helps in understanding the long-term benefits of current marketing investments.

• Adjust to New Realities: Setting realistic growth targets based on current and evolving market conditions will be key. Use industry benchmarks to inform these targets, ensuring they reflect the new focus on organic growth rather than historical M&A activity.

Current Benchmarks and Setting Realistic Expectations

In setting realistic expectations for growth, it’s crucial to consider industry benchmarks. Merrill Lynch advisors, representing a gold standard in the industry, average only about 2.2 new households per year. This metric isn't just a number—it reflects a deep understanding of the unit economics of client relationships.

By closing just three new clients each year, each similar to the 45-year-old with $2 million in assets, you could generate upwards of $1.8 million in value over the span of these relationships. This potential economic benefit underlines why some large RIA firms are willing to pay top marketers over $4 million a year, recognizing the immense value they bring in facilitating such profitable client relationships.

For smaller RIA firms, it's crucial to plan for long-term sustainability. Allocate a monthly investment that you can maintain comfortably for at least 18 months to allow averages to work in your favor. Since the quality of lead vendors tends to be similar, focusing on one or two can significantly enhance your growth efforts. This approach helps avoid the pitfalls of "shiny object syndrome," where frequent starting and stopping eliminates compounding efforts.

Summary

As the landscape of mergers and acquisitions becomes less favorable due to economic tightening and rising interest rates, the future of firm growth is unequivocally shifting towards organic development. This paradigm shift underscores the necessity for firms to invest in building deep, enduring go-to-market strategies. The significant lifetime value of clients and demographic trends present compelling opportunities for firms to realign their strategies toward organic growth. By fostering a growth mindset within your firm and establishing informed, realistic growth targets, you can secure a prosperous future in the competitive landscape of the coming decade.

*References: Mark Hurley: Welcome to the Jungle & Steve Sanduski