As many older RIA clients withdraw assets to meet everyday expenses, firms are underemploying marketing and client referrals to offset the losses.
The research firm Cerulli Associates found in a report released last week that registered investment advisors lose as much as 5% of their assets under management every year for reasons other than client departures. For example, many investors sell holdings to supplement retirement income or pay for a large one-time change, such as a move to another state.
Meanwhile, advisors tend to overestimate their ability to make up for those losses through "organic growth" — assets brought in from new and existing clients.
Spending more time and money on marketing and on securing referrals from existing clients or other sources might seem the commonsense response. Yet, according to Cerulli, those endeavors are often lacking at RIA firms.
"In reality, most firms are passive in their referral efforts, making offhand suggestions at the close of a meeting or including it as a component in an email signature," Cerulli wrote in its
Cerulli said just 51% of RIAs take the initiative in asking for client referrals.
Drawing on its recurring industry surveys, Cerulli reported that more than half of RIA clients are 50 or older and are in or approaching what it calls the "decumulation" stage of their lives. Rather than continue accumulating assets, many are selling to pay for living expenses or for big one-off expenditures.
Clients taking money out to supplement their income accounted for 56% of asset outflows from RIAs last year, according to Cerulli. Such withdrawals and similar forms of attrition drive down firms' asset totals anywhere from 2% to 5% a year, Cerulli found.
RIAs generally hope to make up for the losses through organic growth. But recent market gains — stocks have been on a bull run for more than three years — have caused many firms to be overly optimistic about their ability to bring in assets from new or existing clients.
From 2019 to 2024, RIAs saw their asset holdings increase by 10% to 11%. But exclude gains from rising markets, and the rate fell to between 3% and 4%, according to Cerulli.
One of the main ways firms can secure more organic growth is through marketing. Yet RIAs allocate only about 5% of their budgets to advertising and other means of gaining public recognition, Cerulli found.
Founders, experienced advisors underestimate need for marketing
Joe Anthony, the CEO and owner of the marketing firm Gregory, said part of the trouble is that many RIAs were started by owners who had spent years in the industry and who could draw largely on already established relationships with clients. The younger managers who eventually come in, and have the task of further growing the business, often lack the same ties. They may see a need to spend more on marketing, but they often don't have final say on the budget.
"The founders are still in control of business spending to a degree," Anthony said. "And they're saying, 'Hey, I got to be very successful. I got $2 billion under management without ever spending for professional marketing. Why do we need to do it now?'"
Senior advisors also tend to spend the bulk of their time on efforts besides marketing or drumming up clients through referrals, according to Cerulli. Experienced advisors allocate 20% of their workdays to managing investments and rebalancing portfolios but only 7% to prospecting for new clients.
Cerulli said one way to combat this tendency is to set up internal divisions dedicated specifically to promotions and referrals. Anthony said he and others at Gregory have been receiving more queries lately from firms seeking help in hiring marketing specialists.
But many smaller firms simply can't shoulder the cost of setting up a new internal division. Cerulli found only 14% of RIAs have what it calls a "dedicated resource" for marketing. Similarly, many firms struggle to afford software systems or third-party consultants to help reel in client referrals.
"Without a dedicated resource, RIAs will encounter pitfalls related to advisor time and the conflicting needs of the business," according to Cerulli.
Perception matters to prospects
RIAs that use separate custodians or broker-dealers to safeguard assets and complete trades can sometimes turn to those firms for marketing help. And one step almost all advisories can take, regardless of their size, is to make sure language on their websites, social media posts and other public communications is tailored to the particular group they're seeking to serve, according to Cerulli. Firms should avoid presenting themselves as a good fit for every conceivable type of investor.
All that does, according to Cerulli, is "create an environment in which investors know they would be one of many, with little to no specialization."
"While that may not be the case in practice, perception is the only reality until a prospect is actively engaged with the firm," it concludes.
Anthony said Gregory works with a firm that has become a specialist in helping clients near or in retirement move to Florida. Much of its business comes from investors who tell their friends about the firm after liking their own results.
"And then those people whose friends are also moving down to Naples, or moving down to Sarasota, or wherever it is, are saying, 'Oh, I was moving down here, and we talked to so-and-so,'" Anthony said. "And now they're getting passed down amongst friends that are all doing the same thing."
Consider the next generation
Meanwhile, David Demming, the founder and president of Demming Financial Services in Aurora, Ohio, suggests that marketing and referrals aren't the only ways to respond to the asset withdrawals that come with aging clients. Also important is establishing good relations with those clients' relatives and heirs.
Demming said his firm distributes more than $25 million to retirees and their beneficiaries every year, underscoring the importance of maintaining relations with the next generation of clients.
"What we have learned is to develop relationships with beneficiaries now, well before the death of parents and grandparents," he said. "Consequently our assets tend to stay a vast majority of [the] time."
