Trying to Expand Your Wealth Management Firm? Focus on Organic Growth First.

Growth is an animating concern for most—though far from all—investment advisors. But getting the proper mix of organic growth through marketing and client referrals along with inorganic growth from recruiting and acquisitions can be a challenge, according to new research from Deloitte and Wells Fargo Advisors FiNet.

Of the 70% of financial advisors who say they are prioritizing organic growth, more than three-quarters—78%—say they struggle with lead generation and referrals. Photo: Dreamstime

The survey canvassed more than 125 FiNet practices of varying sizes and in different regions that together manage more than $61 billion. FiNet is a unit of Wells Fargo that provides a platform for independent advisory practices.

In an accompanying report, Deloitte and Wells Fargo argue that advisors should think of growth as a three-level pyramid, with the foundation being strong organic growth. In the middle layer the study authors call for advisors to have a defined ambition for their practice and a strategic plan to achieve those goals. At the top of the pyramid they suggest firms hone their strategy for inorganic growth, including defining their affiliation models and the compensation package they offer to incoming advisors.

How well are firms delivering on those elements of a growth strategy? The short answer is it varies.

“I think the large are getting larger at a faster pace for a reason, and I think that reason is they are incorporating these elements of having the solid foundation, being clear about strategy and ambition, and then executing on top of that,” says FiNet President John Tyers.

As a starting point, it can be easy to forget that not every firm is looking to take on new clients or open new offices. In the Deloitte/Wells Fargo survey, 70% of advisors say they prioritize organic growth, suggesting that nearly one-third aren’t looking to bring on new clients.

“Seventy to me felt like a healthy number because we know that a lot of advisors become lifestyle practices where they have a set of clients, they’ve been at the business for a while, they enjoy that client base, they’re no longer hunting for new clients, and they have a business lifestyle and a personal lifestyle that they’re comfortable with,” Tyers says.

Of the 70% of advisors who say they are prioritizing organic growth, more than three-quarters—78%—say they struggle with lead generation and referrals. The report suggests that advisors can make better use of the digital marketing tools at their disposal, and the advisors polled in the survey on average gave themselves low marks when asked to assess how they are using tools such as local online advertising and LinkedIn to promote their practices. “Current usage of digital marketing strategies is very limited,” the authors of the report write.

Jeff Levi, a principal at Deloitte and one of the report’s authors, notes that growth can be a function of the personnel roles within the firm, and that some are led by “die-hard practitioners” who immerse themselves in portfolio construction and other advisory tasks that don’t do much to build the business.

“You’ve got firms who are on the other [end of the] spectrum who dive right into M&A and into merging with other firms or putting in place technology that they’re not ready to embrace, and they often spend a significant amount of capital but don’t see the full value of that spending because they haven’t readied themselves to actually embrace it and get the most out of it,” Levi says.

Firms can help themselves out by thinking through their strategy, putting it to paper, and treating that like a living document that they revisit as the business’ circumstances change. But many practices aren’t taking those seemingly basic steps—just 58% of the firms Deloitte and Wells Fargo surveyed say they have a strategic plan, which could be seen as the foundational document of the middle layer of the pyramid the report describes.

Levi also observes that the advisory sector has an element of inertia to it, with growth tending to build on itself.

“Momentum is critical,” he says. “We found in the study that practices that start to grow tend to see that growth continue, and actually as practices get larger they often see accelerated growth.”

A solid majority (67%) of firms surveyed say they are planning an acquisition in the next two years, a higher proportion than those that say they have a strategic plan in place. Tyers notes that many of those deals, and much of the M&A activity in the broader industry, involves small and midsize firms combining or adding a small team or even a solo practitioner, even if billion-dollar acquisitions get the most attention.

Recent years have seen record levels of advisor acquisitions, and while those numbers haven’t shown signs of slowing down, Levi says the industry is in a “maturing spot” in terms of how firms are viewing deal activity. If the past several years have been a land grab, with large acquirers snapping up advisory firms, fintech providers, and other specialty players, they are now thinking more strategically about how those entities can fit together in service of a cohesive enterprise.

“I think you’ve seen over the last four or five years an increased focus on actually how do we maximize the value of the puzzle pieces we put together and how do we be much more strategic in the net new puzzle pieces we add on to the thing we’ve already started to build,” he says. “You’ve seen a lot more intentionality in terms of what practices do we put together and how will they fit.”