What Do Economies of Scale Look Like to Your Clients?

One of the key themes we discuss with advisors is the re-emergence of economies of scale as a driver of RIA business success.  To date, we have discussed this theme in terms of an advisors inability to find the time and resources they need to “keep up” with day-to-day business demands or to focus on new business development to grow the business.  Today, we want to explore what economies of scale look like to client prospects and what that means to the competitiveness of firms without it.

In most industries, firms that achieve economies of scale are in a position of competitive advantage.  Why? Because, by definition, a larger revenue base affords these firms a greater resource base with which to support front and back office efforts.  These firms can afford to dedicate personnel and resources to specific efforts like marketing, technology, customer service and product (planning, investing, insurance, etc.).  Smaller firms simply do not have the revenue base to do so.  Principals must therefore operate as “jack of all trades” taxing their time and risking the perception that they are “master of none”.  The table below illustrates how much additional resources are afforded by scale.


So from a very practical standpoint, how does this manifest itself to client prospects?  These large firms are in a position to execute a more proactive business development effort to generate leads, create an impactful first impression, deliver a broader and deeper product array and follow-up with a more robust customer service experience.

Business Development.  The wealth manager can devote a greater percentage of his or her time to new business development.  A greater division of labor within the firm allows the wealth manager to focus on planning, client service and new business development while relying on dedicated resources within the firm to provide support for planning, investing, back office, compliance and administration.  The wealth manager no longer must “make the doughnuts and sell the doughnuts”.

First Impression.  Let’s face it, when a prospect is searching for a reputable firm to handle his or her finances, first impressions count.  The first thing they do is check the website, a firm’s virtual storefront.  Does it look like the firm has the resources to handle my money effectively?  And when the prospect answers yes, visits the offices and sits through the first presentation, is the first impression reinforced?

  • Do the office and the professional marketing materials convey the impression that the firm possesses the resources to support the prospect’s finances?

  • Does the size and professionalism of the organization evoke feelings of trust and safety in an uncertain world?

  • Does it appeal to the prospect’s vanity that they have achieved a level of success that deserves membership to and service by this elite group?

These impressions require resources: an investment in office space and dedicated marketing personnel to create professional branding and marketing communications.

Product Array.  Having made a strong first impression, do you have a product array that sets you apart from the competition?  Because the breadth and depth of expertise is increasing at these larger firms.

  • Do you offer expert resources to support a range of planning requirements (retirement, estate, tax, insurance, education, divorce, business)?

  • Do you offer an attractive and continuing client communications program?

  • Do you have an investment program that meets client requirements and a long-term track record of success to support it?  Note that the secular bull market of the 1980s and 1990s enabled advisors to market attractive investment returns with very little investment of time and resources in the Buy & Hold strategy.  That strategy has proven less effective since secular bear market arrived at the turn of the millennium.  Larger firms can afford expensive investments in personnel, technology and independent research to ensure they maintain an investment program worthy of being marketed to clients.

Customer Service.  Once the prospect has been sold, are the resources there to maintain the good feeling created during the courting process?  When you are not available, are there others in the firm to cover for you?

What is important to keep in mind is that these large firms are able to create this value proposition while charging the same price as advisors offering a less robust value proposition.  And while we are not saying that large firms have a corner on the market for strong client relationships and exceptional service, what we are saying is that as time passes the differences between large firms and small firms is becoming more evident to clients.  And in a culture that “values getting more for less”, getting more for the same price may be an attractive offer for many prospective clients and an absolutely compelling value for those large firms that not only appear exceptional but in fact are exceptional. Indeed, we hear advisors saying they wish they could improve their website or provide a more substantive quarterly newsletter or whatever because they see the advisory firms they are competing against offering them.

And what is also important to keep in mind is that there are a growing number of these large firms in a town near you.  A quick search of our RIA database indicates that there are more than 1250 RIAs with more than $1 billion of assets under management that categorize their activity as financial planning services and they are located in 41 states plus the District of Columbia.

About Pinnacle Advisor Solutions 

Pinnacle Advisor Solutions is a new division of Pinnacle Advisory Group that offers comprehensive, custom and private-label business solutions to emerging independent financial advisors who are committed to growing their firm profitably and developing the practice they always wanted. Designed by advisors for advisors, these solutions are proven in the field to (a) free advisor time to grow their firms, (b) produce alpha and reduce downside capture in volatile investment markets, (c) build equity in the business and (d) improve compliance.  In addition to more than twenty-years of experience growing its own firm to more than 700 families and over $1 billion AUM, these solutions incorporate more than a year of direct interviews with independent financial advisors.  (www.PinnacleAdvisorSolutions.com

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