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Hosted by Financial Advisor Coach, Ray Sclafani, "Building The Billion Dollar Business" is the ultimate podcast for financial advisors seeking to elevate their practice. Each episode features deep dives into actionable advice and exclusive interviews with top professionals in the financial services industry. Tune in to unlock your potential and build a successful, enduring financial advisory practice.
Ray Sclafani (00:00.366)
Welcome to Building the Billion Dollar Business, the podcast where we dive deep into the strategies, insights and stories behind the world's most successful financial advisors and introduce content and actionable ideas to fuel your growth. Together, we'll unlock the methods, tactics and mindset shifts that set the top 1 % apart from the rest. I'm Ray Schlaffani and I'll be your host.
So what separates the top performing advisory firms from everyone else? Is it their size and scale that affords them the ability to deliver more specialized services and market themselves more effectively? Or is it the quality of their advisory teams? Maybe it's the ability to get the most out of technology. Today, I'd like to deep dive into the Schwab 2024 RIA benchmarking study and share with you top highlights, insights, and opportunities that'll help you plan for the future.
According to their study, the answer is all the above and more. The best in the business are separated by more than just marketing size and scale and technology. In fact, if we look at the top quintile firms in their study, the separation and relative outperformance is striking. When it comes to net asset flow, the top quintile firms are 15.3 % versus 5.8%. When we look at the revenue compounded annual growth rate,
It's a staggering 17.6 % versus 8.3 % everybody else. And when it comes to new clients, the compounded annual growth rate of 12.6 % versus an anemic 4.6%. Considering the capital markets, the SMP alone over the last decade has grown at 12 to 14%. It really indicates what are the best in the business doing compared to everybody else. I want to dig into the and examine the specific factors that enable
these select top quintile firms to outperform their peers by two to two and a half times across every significant measure. A rising tide lifts all boats. Let me dig into organic and inorganic growth here for just a moment. Driven by strong market performance, the average 60-40 portfolio returned 17.2 % for the year. 2023 saw solid asset gains in assets and revenue.
Ray Sclafani (02:22.848)
across the RIA industry, but this increase wasn't solely market driven. Much of it was organic and inorganic. In fact, once again, the top performers excelled, gathering 4.5 times more assets than the average firms. The study notes several key strategic commitments that appear integral to helping these select firms outperform the rest. So if you want to know what separates the best in the business from all else, no surprise.
compelling referral plans. And I know this may sound like, man, I've heard this before, Ray, but referrals indeed are the leading growth driver, accounting for more than two thirds of new clients and net new assets. Not surprisingly, top performing firms are more than 30 % more likely to have a well-documented referral plan for their existing clients, and 35 % more likely to have a documented referral plan for centers of influence. Let me just state for a moment here,
Most firms think about referrals as a reactive strategy and not so much a proactive strategy. But what's separating the best from the rest is that they have a well-documented plan. Jeez, no surprise. What great irony. Here we are once again, the best in the business, building plans, making adjustments, executing against the plan. When we think about referrals at ClientWise, the truth is somebody's gonna feel uncomfortable about the process.
either the advisor asking or the client being asked. The truth is when you think more specifically about building client advocates, what we notice is that the best in the business are focused on a strategy where less is more, identifying five to seven clients who want to be actively engaged, who can articulate your value proposition, who have influence over a network and are willing to work with your firm. That's what active engagement is all about.
Well, they'll make three or four introductions of the ideal client type. So instead of spraying and praying and betting a bunch on a hunch, my take, our take at client-wise and our research complemented by what we're seeing in Schwab study is that no doubt less is more. Build loyal client advocates and a select group of other professionals, move beyond CPAs and attorneys, and there's magic there. So that's number one. Let's go to key strategic commitment number two, robust.
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client feedback mechanisms. Firms that collect feedback during client reviews gain 26 % more assets from existing clients. Not surprising, top performing RIAs are 43 % more likely than their peers to conduct regular client surveys. What a surprise. My good friend, Julie Littlechild, has done historically an amazing job and would echo the same that we see here in the Schwab study.
By the way, if you're looking for a more formal way to conduct client surveys, I'd contact Julie's firm and I'll put that in the show notes here at the bottom of the episode so you can learn more about her offering. We also at ClientWise introduced something 18 years ago we heard advisors do quite effectively. And it's what we call the ClientWise conversation. Five specific questions that about every 12 to 18 months you want to ask 25 clients. You can ask again.
just about every 12 to 18 months. Here are the five questions. Mr. and Mrs. Lubner, we've worked together for the past 15 years. What's the one thing you value most about my firm and how we serve you? What's the one thing you'd like us to change or improve about how we serve you? If you were gonna describe the services of our firm to somebody else, what would you say? And the achievement question, number four. In the 15 years, Mr. and Mrs. Lubner, we've worked together. What would you say we've achieved together?
and among your other trusted advisors, who do you trust the most and why? See, these five simple questions really get to the heart of seeking client feedback. To learn more about the client-wise conversation, check out the show notes. I'll put that information there at your ready. So again, robust client feedback mechanisms. That's key strategic commitment number two. In the study, they noted the third was segmented marketing plans. Top performers document ideal client personas.
clearly defying client value propositions and establishing very structured marketing plans. There it is again, documented structured plans, enable them to attract 67 % more new clients and new client assets than firms that overlook one or more essential marketing tools. Jeez, no surprise. If you go back to Mark Hurley's paper, Welcome to the Jungle, the whole idea of getting more specific about ideal client personas.
Ray Sclafani (07:14.306)
being more specialized and becoming a subject matter expert in your area of expertise is exactly what it's all about. And I'll put a link again in the show notes to Hurley's white paper, Welcome to the Jungle. Again, the effort here is to go deep into the study, but also provide you some resources that could be helpful. The fourth key strategic commitment that appears to be integral in helping these firms succeed and outperform is robust lead tracking.
The median lead conversion rate for RIAs that conduct careful lead tracking was 50 % in 2023. Across all measurable metrics, top performing RIAs do a better job of lead tracking, such as 43 % more likely to track the status of prospects in their sales funnel, and 56 % more likely to track lead conversion. Again, the detailed analysis and building a robust pipeline where you've got top of the funnel,
middle of the funnel, bottom of the funnel is really key. I'm surprised how many advisors and advisory firms just don't have a funnel because they're not doing much lead generation. And I've heard it over and over again, Ray, if we do just a great job for clients, we'll get some referrals and that'll be how we grow our firm. Well, in the world we live in today, not only where the opportunity is ever present, but attracting top talent requires growing your firm and there's all kinds of
intangible and tangible benefits to building a culture of growth. The enterprise value, the impact for clients, the top talent, and the ways you'll be able to enhance your value proposition are all key drivers of thinking about growth in new and different ways. More about that in separate episodes, but clearly a robust lead tracking is at the top of the list. Schwab highlights in their study that effective planning and execution are all key drivers of growth, but they demand clear focus.
strategic foresight and an innovative approach. The growth engines of top performing firms are fueled by a shared vision for the future, strong alignment, consistent execution, providing a clear roadmap for sustained success. Let me just repeat these again, a shared vision for the future. And I would argue not just a shared vision pie in the sky, but a shared vision for how we want to grow the business, strong alignment around what that vision looks like, and then consistent execution.
Ray Sclafani (09:39.342)
Okay, let's prioritize talent acquisition and retention here for just a quick moment. You know, we spent a lot of time talking about client acquisition, but talent acquisition is really emerging. Firm growth, especially among top performing RIAs, requires a greater focus on attracting and retaining top talent. Industry growth has translated to strong hiring activity. Over the past five years, 75 % of firms have hired new staff.
a rate expected to be matched this year 2024 and beyond. In fact, over the next five years, check this out, the average RIA firm will need to hire four new roles while top performing firms will add seven new roles on average, translating to more than roughly 70,000 new industry hires, not including attrition or retirement replacements. I'm not so sure about retirement replacements. It seems like more and more advisors are living longer.
And as one said to me recently, Ray, I think I'm just going to die at my desk. In other words, maybe we just go along on oxygen tanks because that's what the future looks like. If you look at what the industry expansion looks like, 70,000 new industry hires, I just looked up today as well, 300 colleges and universities across the country now have certified CFP board certified programs. So the talent is going to look new and different in the future.
and it won't look like it did 15 and 20 years ago. Given this awareness, a growing number of firms are devoting more time, attention, and resources towards both talent retention, which is employee engagement, as well as addressing current and future talent gaps. So a few bullet points here. First, developing capabilities and skill sets of team members is a top five strategic priority for the first time.
in the benchmarking studies history. Now Schwab's been at this for a while and by the way, they're the very best that we see in the industry collecting lots and lots of data among top RIAs. So this really has got to get your attention. So your employee engagement strategy, and I would say the actionable idea here at the very least is start building career paths and written professional development plans for your people. The second bullet point that caught my attention
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76 % of firms reported career path progression opportunities that keep employees engaged. I heard Mark Taberjian many, years ago say there are four reasons people are joiners to a firm and four reasons they stay. It's the nature of the work. Do they like their J-O-B? Do they like the role, the responsibilities? The second, nature of the workplace. What's the culture? What's the vibe? Nature of the relationship.
with those in charge and forth is money. So if you can build these durable career paths, if you can partner with your employees to build this engagement model, this career projection, you're going to be well ahead of the curve. And the third bullet point, most firms are realigning their employee value proposition, the EVP, to better resonate with current and prospective employees. In an episode that I did with Tony
of Parr McKnight, an RIA based in Minnesota for Barron's advisor back earlier this year. He and I spoke a great detail about some of the EVP of his firm offering everything from heated parking, which is apparently a big deal in Minnesota, especially in the winter time, to pet insurance. They've really gone above and beyond thinking about ways to partner with their employees that will attract and retain top talent.
As regards to this last EVP bullet point, it's interesting to note that top performing RIAs are about 58 % more likely to have that employee value proposition documented, a set of tangible and intangible offerings the firm provides team members in return for the skills and experiences they bring to the business, more so than their peers. So in other words, documenting an EVP, just start with draft at the top of the page,
Ask your current employees today, hey, what would you say is the value proposition for being here at our firm? This is an important ingredient to every high performing firm. These top performers do realize that people are by far their most important asset and set about creating a cycle of opportunity to attract and retain top talent that will ensure the continuity of the firm's people, culture, and values. A couple of years ago, I was asked to be a speaker at the
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Schwab Impact meeting and spent some time talking to a very large audience about your greatest asset is your people. They're not a liability. They may be your greatest expense on your P &L, but they are also your most significant and important asset. Now's the time to intensify your focus on building high performing and a diverse team, unlocking your team's full potential and
adequately rewarding and developing the next generation of firm leaders. Okay, let's talk about high touch experience with clients. The Schwab study showed that there's widespread adoption of digital tools and processes to automate operations and facilitate scalable growth, creating more capacity for firms to offer a more tailored client experience. In fact, nearly all firms rely on technology to help automate processes. 99 % use a portfolio management system.
I'd like to know the 0.9 % or so that didn't. That's a shocker. 97 % have a CRM system. Again, I don't know why it wouldn't be 100. And 93 % have a financial planning system. Again, table stakes in today's day and age of advising clients. However, top performing RIAs, heavy adopters of digital tools and workflows spend 25 % less time annually per client on operations and about 10 % more time on client.
per client on service. some really interesting data, AI is going to continue to change that and drive those numbers and efficiencies even greater when more and more roles that can be automated, responsibilities within roles being automated through technology. The study also notes that operational excellence creates greater capacity for clients. Institutionalizing your business through technology and operations provides operational discipline, allowing you to maximize scalability,
manage risk and build a solid infrastructure to reinvest time where it matters most with your clients protecting the trust you have built." quote. Okay, so this drive towards digitalization is only half the equation. Technology must be combined with a thoughtful client segmentation strategy for genuinely high touch client experience that better aligns revenue with the cost to serve and support. Now for a really small firm, not a big deal.
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If you're trying to build a billion dollar business, and by the way, I've not yet defined what that really means. Is it a billion dollars in assets under management, multi-billion dollars in assets under management, or a billion dollar valuation? Again, you choose. If you're building a firm that is growing and you're thinking about scaling, well, absolutely you've got to be paying more attention to the numbers, aligning revenue with cost to serve and support.
This is an area where top firms excel as they're 28 % more likely to have a documented client segmentation strategy that defines the client experience and how it's delivered consistently and efficiently among each segment of clients. Segmentation and technology can also help pursue the next generation of clients, the relationships with perhaps tremendous future upsides.
So you can facilitate engagement with second and third generation of current clients. If you're segmenting properly, you can build a more diverse team of firm talent to reflect younger investor better. You can also offer educational tools to help build financial literacy and educate the next generation of wealth inheritors. All of these are key drivers to segmentation in a way that's truly valuable and ultimately profitable. Never forget that value is highly subjective, but is
always defined through each client's individual lens and top performing RIAs thrive because they focus on client experience from the client's viewpoint rather than their own. Only when every person, process, service, offering, and system is aligned and focused on your ideal client will you be able to differentiate your business successfully. So as we get through the study, hopefully those highlights are really helpful for you and your team.
And now part of the episode where we introduce some of the coaching questions related to the episode that hopefully you and your leadership team will coalesce and discuss as a group. There are four coaching questions today. The first is, well, how can you further optimize your referral and client feedback strategies to drive greater growth, ensuring you attract the right clients and deepen relationships with the ones you already have? Second, as you prepare for future growth,
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How can you redefine your talent acquisition and retention strategies to fill the roles that you need, build a sustainable high-performing team that can evolve with the needs of your firm over the next one, three and five years? Third question, how might you leverage technology and operational efficiency to create a more personalized and high touch client experience while continuing to scale your services profitably and effectively? And then the last question, how can you better define and document
your client segmentation strategy to ensure that you consistently deliver value to your clients, primarily as you pursue the next generation of clients and investors. Well, thanks for tuning in. And that's a wrap. Until next time, this is Ray Sglafani. Keep building, growing, and striving for greatness. Together, we'll redefine what's possible in the world of wealth management. Be sure to check back for our latest episode and article.