What Should Growth-Minded RIA Industry Professionals Focus On?

August 10, 2023 Oak Street Funding

Growth-Minded RIA

Suppose you're ready to take your advisory firm to the next level in the RIA industry. If so, you are probably aware of all the promises for success promoted through programs, services, products, and best practices. While there are numerous opportunities and ways to grow your firm, each path should be properly vetted to ensure success. Before you decide how to grow, here are some insights to increase your chances of getting the right results and expected return on investment.


Strategize before buying leads

Purchasing leads offers a quick and easy way to obtain a high volume of contacts. However, with typical costs per contact of 50 cents to a dollar, it can be expensive, and there are no guarantees for satisfactory results. Without a strategy to develop and nurture those leads, converting them to customers can be costly. Before investing a large sum of money, conduct a trial run by crafting and executing a strategy with a smaller number of existing leads from your current database. Use the same approach you plan on using with the leads you would purchase. If you currently have a CRM system or some other form of marketing automation software, make sure you understand and use all its capabilities.

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A trial-run approach is an effective way to reveal whether you and your staff have the discipline to handle the leads properly before making a substantial investment. If you and your team lack that discipline, consider implementing a different system or abandoning the idea of spending money on leads. A trial will also help you identify opportunities to improve your processes, such as adjusting the time between calls or adding email or direct mail to your communications efforts. Modifying your approach beforehand can put you in a better position to maximize any leads you decide to purchase.


Plan uses of marketing technology

RIA firm owners often invest in websites, CRM systems, email broadcasting subscriptions, and marketing automation, expecting the technology alone to attract, engage, and convert prospects to customers. Software and subscriptions to online services can run as high as a few thousand dollars per month. Investing this amount on marketing technology without knowing how it will fit into an overall plan rarely translates into a strong return on investment. What's more, even when technology is implemented wisely, it's unrealistic to expect results in a short period.

Just as purchasing leads in the absence of planning can prove futile, investing in marketing technology without planning can waste valuable resources. To have a real shot at recouping your investment, you need the proper foundation of a strategic marketing plan. Also, remember that it may take months before your marketing technology is fully functional and producing results.




Financially prepare for new hires

Hiring can be an effective way to grow, but recruiting employees without proper preparation can quickly drain a company's cash flow. Concern about developing new talent is a significant issue for the RIA industry. It will become increasingly critical as the Baby Boomers, who represent most firm owners, prepare to retire and exit the business. The most common problems arise when firms do not adequately prepare for the overhead of additional salaries and benefits, or they fail to estimate the amount of time necessary for those new hires to increase sales. Additionally, they may hire the wrong caliber of talent, provide the wrong compensation structure, or fail to properly develop and train new hires. Consequently, through hiring that is not well thought out, growth plans can quickly go awry and be a significant strain on precious resources.

Beyond salaries for new advisors, there can be extra expenses for advertising, marketing, technology, and training. Firms should financially prepare to cover a new employee's costs without expecting to see a return for a while — maybe as long as 18 months. This may require tapping into savings or obtaining a loan. Hiring is a significant investment, but it can result in tremendous business growth when appropriately managed.

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Acquire only transparent sellers

Acquisitions are an excellent way to grow, and RIA industry owners can see quick results. But many acquisitions fail to produce satisfactory results. Too often, business owners purchase a firm with too many unknowns. Usually, owners think they're getting a great deal and believe they're aware of the issues they'll have to address once they own the business. Unfortunately, struggling firms looking to be acquired may not be forthcoming in sharing their problems, challenges, or weaknesses.

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The key to successful RIA industry acquisitions is a thorough due diligence process. This isn’t possible in transactions with sellers who refuse to be transparent. Just as it would be unwise to buy a house without an inspection, acquiring a firm without detailed insight into its financials and operations would be a dangerous and risky endeavor. Transparency by the seller must be the first condition satisfied before taking any other steps towards a purchase. A seller who is reluctant to share information is waving a huge red flag, warning you to take a step back and rethink your decision to acquire.

The solution to all of this is a well-crafted nondisclosure agreement (NDA) or confidentiality agreement. NDAs give potential buyers access to information needed to conduct proper due diligence while also protecting sellers against buyers who misuse and share confidential information and solicit sellers' customers and employees.

As with any business decision, it is essential to look at each option from all sides and determine the cost as well as the realistic return on investment. Given all of the above options require an influx of cash, it is also important to determine your firm's best lending option. If you don’t know exactly where to begin, please feel free to contact us. At Oak Street Funding, we have experts in-house who have helped thousands of clients make the best lending decision for their particular needs.

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Disclaimer: Please note, Oak Street Funding does not provide legal or tax advice. This blog is for informational purposes only. It is not a statement of fact or recommendation, does not constitute an offer for a loan, professional or legal or tax advice or legal opinion and should not be used as a substitute for obtaining valuation services or professional, legal or tax advice.

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