There are several components that affect the growth of a fee-based advisory business.

Additive to Growth

  • New clients
  • Existing clients adding additional assets
  • Market movement

Subtractive from Growth

  • Lost clients (averages 3% per year)
  • Clients receiving distributions (averages 3 – 5% per year)
  • Advisor’s fee (averages 1% per year)
  • Market movement

Notice that before accounting for market movement, on the low end, you have to add about 7% of new revenue just to breakeven (3% lost clients + 3% distributions + 1% advisor fee).

A portion of these lost assets are often offset by existing clients adding new money so now we’re down to about 2 – 4% of new revenue needed to reach breakeven.

One of the beauties of the fee-based asset management model is your revenue tends to grow simply because financial markets rise over time.

Of course, that comes back to bite you in times like now, where the S&P 500 index has been flat for two years and bonds have been decimated.

Here’s the disappointing news as it relates to the long-term health of the financial advice profession: Industry data clearly shows that the typical advisory firm has 0% revenue growth when you exclude market movement.

It begs the question, if you don’t want to be beholden to rising markets to fuel your growth, how can you fire up your organic growth?

Beyond the Usual Suspects

The knee-jerk reaction to kickstart organic growth usually starts with “let’s do some marketing” or “let’s double down on improving our service so we can get more client referrals.”

And that’s great. You should do that.

Unfortunately, executing on these isolated tactics, while helpful, misses the bigger picture of how the tactics fit within this broader thing called “your company.”

Isolated tactics are like trying to optimize an individual tree within a forest. Yeah, it’s helpful, but if you don’t view the forest in its entirety and how it’s one big interrelated ecosystem with lots of “moving parts,” then you’ll make individual decisions that could put the entire forest in jeopardy.

Just like a forest needs the right soil, nutrients, neighbors, and climate to thrive, your business needs to cultivate the right environment for organic growth tactics to flourish.

3 Keys to Organic Growth

Here are three ways to cultivate the right environment for your company.

1. Permeate your purpose.

Beyond just making more money, does your firm have a singular direction, or north star that it is driving toward? Many firms just amble along, continue with the status quo, react when the environment forces them to, but never proactively ignite a level of passion and determination to pursue a shared ideal.

Mission Wealth, a $5.6 billion AUM firm based out of California is very clear on its purpose. Co-founder Seth Streeter told me, “Growth to us is synonymous with impact. The more we grow, the more opportunity there is for our team, the more families we can serve, and the more communities we can give back to. So, for us, growth fuels our purpose because our purpose is making an impact.”

In my Between Now and Success podcast with Amit Dogra, president and COO of tru Independence, a services-based platform for RIA firms, he said they call their team members “tru believers.” And the firm’s purpose helps turn team members into tru believers which leads to growth.

If you have tru believers, you’re a champion for tru Independence in your community. When you’re enrolled in that and you share that and you share it proudly, people will pick up on that. And, who knows who you run into, where you run into them, and how it could potentially lead to opportunity. So, it leads to growth by retention. It leads to growth by being a tru believer, a champion in your community, and it leads to growth through relationship capital or relationship retention.

Where does purpose come from?

High-performance psychologist Dr. Michael Gervais told me, “Nobody can give you purpose. It has to matter to you.” He also said your purpose has to be bigger than you and it has to have a future orientation.

But here’s the tricky thing. To achieve the power of full alignment, each team member’s personal purpose needs to connect to the company’s purpose. How do you do that?

You do that by hiring people whose personal purpose is aligned with your corporate purpose. And if you have current team members whose personal purpose is not aligned with your corporate purpose, they should probably become former team members.

Companies underpinned by a strong purpose radiate at a higher energy level. Team members fueled by a personal purpose that’s connected to the company purpose elevate their performance. And that leads to the second key—unlocking discretionary effort.

2. Unlock discretionary effort.

The gap between what a team member needs to deliver just to keep their job and what they are fully capable of delivering is called discretionary effort. Companies that consistently deliver double-digit organic growth have created an environment that fosters high discretionary effort.

Brian Kropp, Distinguished VP at Gartner, told me that the top performing companies have a different kind of relationship with their team members. These companies understand that:

You don’t have workers. You don’t have employees. You have human beings that happen to be working for you. And you treat those people like human beings, not like workers and understand that they have a life and they view work as part of their life rather than work is their life.

Further, he told me that the top performing companies had clear employee value propositions that were tied directly to the culture and purpose of the company. For example, Netflix is known as a high performance, high pay company and if you work there, you’re expected to bust your ass and deliver. Accordingly, Netflix will attract people who find that invigorating and repel people who prefer a different environment.

While Brian may sound like he’s contradicting himself in the prior two paragraphs, he’s not. One company’s employee value proposition might include an emphasis on “work-life balance” while another, like Netflix, might be focused on high intensity, high expectations, and big results. It’s not that one is right and the other is wrong, they’re just different and they’ll each attract team members who fit the value proposition on offer.

3. Deliver service excellence with hospitality.

These two go hand in hand. Since financial advising is a service and clients may not know for years whether or not the advice that’s given will perform as desired, they’ll turn to things they can feel. They’ll evaluate how prompt you are, how well you pay attention to details, how consistent you are in following up, how proactive you are in keeping in touch, and a thousand other touchpoints.

Here’s the kicker—you can deliver service excellence and do everything “just right.” But what really separates the best advisors is not “how” you do it, it’s how you make the client feel while doing it.

Sterling Shea, former head of Barron’s Advisor and now Head of Practice Strategy at Morgan Stanley, first turned me on to this idea of service versus hospitality. In conversation with famed restauranteur Danny Meyer, whose book, Setting the Table, described how to deliver hospitality in business, Sterling realized the direct application of “hospitality” to the advice business.

As Danny Meyer wrote in his book:

Service is the technical delivery of a product. Hospitality is how the delivery of that product makes its recipient feel. Service is a monologue — we decide how we want to do things and set our own standards for service. Hospitality, on the other hand, is a dialogue. To be on a guest’s side requires listening to that person with every sense, and following up with a thoughtful, gracious, appropriate response. It takes both great service and great hospitality to rise to the top.

When you are seated at the precise time of your reservation at the exact table and with the waiter you requested, that is a reflection of good service.

When the right food is delivered to the right person at the right table at the right temperature at the right time — that’s service.

When you see a member of the waitstaff decanting a bottle of wine with care and grace, that’s service.

When your empty plate is cleared from the table in a graceful manner, that too is service.

When, in answer to your question, the waiter can explain the nuances of the wines on our list, that’s service.

But hospitality, which most distinguishes our restaurants — and ultimately any business — is the sum of all the thoughtful, caring, gracious things our staff does to make you feel we are on your side when you are dining with us.

I think of it this way: use systems and team member training to deliver service excellence and systematize the predictable, then use your remaining attention to humanize or “hospitalitize” the client experience.

To hire people who can deliver service excellence with hospitality, Meyer looks for what he calls “51 percenters.” He hires people “whose skills are divided 51 – 49 between emotional hospitality and technical excellence.”

How does hospitality connect to organic growth? More referrals!

At its core, it makes sense to view organic growth like Meyer’s 51 percenters. The recipe is 51% cultivating the right environment and 49% the strategy and tactics you execute within your environment.

If you want to ignite organic growth in your company, let’s talk about my coaching service.