In an industry with exact figures for metrics like assets, investment gains and revenue, an important marketing barometer called "client acquisition cost" depends on ranges and nuance.
The price tag for wealth management firms to win a new relationship — the "client acquisition cost," "customer acquisition cost" or "CAC," for short — runs between as little as $500 and up to more than $10,000, according to marketing experts. To answer the question of whether
Easier said than done
Calculating whether an
And many firms simply haven't grown to the point that they have
"It's so specific to the firm and to the channels that they're investing in," she said. "I find those benchmarks often to be noise. What's most important for firms is, identifying what their own baseline client acquisition costs are, going through the exercise to identify that and then having the conversation of, 'does that work for us?'"
She and Joe Anthony, the CEO of fellow wealth management marketing firm Gregory, point out that firms often forget to include the cost of the time spent by advisors or other staff on the relationship. Another typical error comes from failing to pin down the source of any new business through any kind of client intake form or tracking website statistics that document its role in the so-called
"It may feel tacky, but if you want to be serious about it, you want to make sure that you talk through the form," he said. "You have to commit to actually keeping score before you really know what your true customer acquisition cost is."
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Unpacking the price and the hidden costs
The
On the other hand, since firms become more valuable and advisors earn more as their RIAs or advisory practices expand, their own client acquisition costs are climbing as well. And the costs of advisors' and other employees' time comprises 71% of the total, the report found. That's why firms that generate less than $250,000 in annual revenue have a client acquisition cost of $1,064, while those producing above $5 million are spending $10,408. So firms often wind up at what Tenenbaum and Squires called a "crossroads in their marketing strategies" when they weigh the cost against the incoming revenue.
"The cost of organically acquiring this additional revenue through marketing rises to (and eventually surpasses) that of simply acquiring that revenue inorganically via M&A," they wrote. "In other words, relying on the time-intensive tactics many advisors used to grow their firms in the first place becomes so costly that it is no longer worth pursuing organic growth! One key implication is that firms whose marketing expenses are less reliant on the cost of advisor time (either because they rely on hard expenditures or because they have delegated marketing work to others whose time is less expensive) should be able to scale their marketing costs more effectively as they grow. Our data suggests this is the case."
Such findings explain why the segmentation of clients into those driving the most value to the firm over the longest period over a family's generations is "the heartbeat" of the industry's advisor recruiting and M&A deals today, according to Trey Prescott, the director of business development with Atlanta-based RIA platform Advisory Services Network. But every advisor faces limits when they try to get the optimal return on their marketing investments.
"It just really gets down to the type of client that you want to serve," Prescott said. "One thing that we don't have enough of is time."
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Finding the bargains
Undercounting the price of advisors' time and that of other staff is "where most firms go wrong," according to JT Gill, a digital strategy specialist at FiComm. In addition, they may be neglecting customer referrals, which remain the industry's No. 1 source of new business, or those coming
"The advisors who grow most efficiently build a genuine referral system: a consistent way of asking, a process for staying visible to centers of influence and a client experience that gives people something specific to talk about," Gill said in an email. "Milestone recognitions, proactive outreach tied to a client's actual life moments, and
And that is the kind of "foundational work that's required" to turn the client acquisition cost into a meaningful metric for analyzing a firm's growth, Carpenter said.
"It's an important factor when you're making decisions as to where to allocate time and resources," she said. "If you're building an internal marketing discipline for the first time, there are a lot of key considerations that need to be taken into account before CAC."
All of the resulting subtlety could alter the equation when firms are thinking about, say, splurging on tickets to a playoff basketball game or the Kentucky Derby, Anthony said. It costs dramatically more, but advisors could be speaking to a prospective client at just the right time before retirement or another important life event. So tens of thousands of dollars up front could add up to hundreds of thousands or millions back over time.
"You may have a higher batting average if you spend quality time with somebody," Anthony said. "A great marketing plan isn't a low customer acquisition cost. It's a good return on the cost."
