Independent advisory firms' revenue dropped by an average 9.5% in 2009, but revenue is on the rise this year, especially at firms that focused on client targeting and service during the recession, according to FA Insight’s Study of Advisory Firms: Growth By Design.

The best–performing firms did so by ensuring a smooth client experience, said Dan Inveen, principal and director of research at FA Insight. “You have to build the firm in a way that the client experience is tailored to that prospect, so you can retain them,” he said. Standout firms were more apt to define a target market and customize their client service policies to meet that group.

Client advisory boards, loyalty programs, client appreciation events, and retention-linked incentive compensation are all tools that standout firms use to get better client retention results, according to FA Insight. As a result, turnover at standout firms was between 1% and 3%, compared with 3% to 5% for other firms, according to the study.

FA Insight, based in Tacoma, Wash., sampled 211 firms for the study between February and April. It divided the firms into four categories by and operational characteristics. The “operators” had $75,000 to $500,000 in gross annual revenue and were mainly sole proprietorships; “cultivators” had between $500,000 and $1.5 million in revenue with a second professional and support staff; “accelerators” took in $1.5 million between and $3 million in revenue and with multiple administrative and support staff; and “innovators” pulled in more than $3 million in revenue, and was run by multiple owners with specialized technical staff and managers. Within each stage of development, FA Insight focused on the top third by their income and growth numbers. 

It’s been a tough market, in which the owners of independent firms have tightened their belts considerably. Average owner income fell from 51 cents per dollar of revenue, or $446,164, in 2008 to 44 cents per revenue dollar, or $366,200 in 2009.

However, by the end of the year, average assets under management were up 20%. Owners expect to end out this year with revenue increases of 16%.

Naturally, some firms did better than others: Their owners earned 40% to 60% more income per dollar of revenue and earned 2.4 to 3.5 times more revenue per client despite the fact that the top-performing firms typically served smaller clients.

FA Insight puts their success largely down to knowing their clients. The consulting firm said 30% of firms haven’t defined their markets and suffered more in the recession as a result. However, even with the standout firms, there is some room for improvement, Inveen said. The majority of standout firms reported that their plans for marketing were only somewhat effective, and only 30% of top performers have conducted a detailed customer segmentation analysis.