According to Blackrock’s recently released 2016 Elite RIA Study, so-called “Elite” RIAs, those above $250 MM AUM and the 50th percentile in productivity measures, typically began to look like “mini-corporations relying on individuals and departments with well-defined functions that support the full organization and its client base.” The table below from the report shows the percentage of RIAs who have employees dedicated to each functional area.
The list provides a fairly accurate picture of the priorities of larger advisory firms. Operations and Investments top the list considered by most firms as essential support functions. In contrast, surprisingly, at the bottom of the list is Marketing. Less than a third of Elite advisory firms have marketing professionals on staff suggesting that a formal marketing effort is not currently a core business driver.
Survey data of the expenditures of RIAs seem to support the proposition that marketing is not a priority. Even larger RIAs tend to limit marketing expenses as a percentage of revenue at about 1.0%-1.5%. By comparison, law firms and physicians’ offices spend a bit more at 1.5% to 2.0% of revenues while architectural and engineering firms spend from 2.0%-10%. Overall, smaller companies tend to spend on average about 9% of revenues on marketing.
It is our view that leading RIAs intent on growing beyond their natural client base or regional market footprint must recognize the importance of increasing their marketing spend. This imperative is driven by the effectiveness and ubiquity of new marketing methods, and the ineffectiveness of more ad hoc or opportunistic current practices. RIAs must realize that achieving expansion goals requires a more informed understanding of their market, a more formal approach to targeting and distribution, including coordination with COIs and other intermediaries, and a more robust and impactful communications effort. And that this communications effort will demand a compelling and regularly refreshed website, a comprehensive, well-designed and closely monitored social media presence and a substantive and value-added thought leadership program designed to generate leads.
It will be interesting to see whether marketing departments become more widespread among Elite RIAs as the tools of marketing become more essential and effective to firms’ growth rates.