Web search will enhance referrals, not replace them.
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Back in March, Lisa Gray posted an article on Advisors4 Advisors entitled “The Big Referral Myth: How The Internet Has Changed The Way Advisors Get Business." In it, she suggests that referrals are no longer the most important way advisors get new clients, but that searching on the web has become the single most critical way to attract new clients.
At the time I thought she was wrong. The idea that web search replacing referrals in importance was over the top. While I still believe referrals are the most important way to attract new clients, I realize the point she makes is more important than I thought at the time. Four days after her post, Michael Kitces published an article called "In The Future, The Best Firms Won’t Find New Clients; The New Clients Will Find Them." In it, he refers to a Rydex/SGI advisor benchmarking survey of the different marketing methods employed by advisors in 2011 versus 2010. While the picture painted by the survey shows investment advisors struggling to understand how best to use the Internet and social media for marketing, it led Kitces to the conclusion that if advisory firms want to succeed in marketing they must be more "findable" on the web. And that requires that they have a more clearly defined niche and that they create content more specifically targeted to that niche. The importance of target marketing was another point made in Gray's post.
Then, on April 2, Registered Rep magazine published the article "Call In The Specialists." The article contains four case studies of financial practices that have found marketing success by specializing in the unique needs of a specific group. Interestingly, the article discusses niche marketing as a specialty within a more general advisory practice. It quotes Danny Sarch of Leitner Sarch Consultants Ltd discussing how you to pay to add that specific expertise to your advisory team. Advisors who pursue this strategy missed the point – the whole idea is that the specialized knowledge creates value and the biggest rewards will come to the advisors who orient their practice toward that specialty rather than maintaining a general practice and hiring a specialized team member. While there may be an issue of how to pay to acquire some of that expertise, the whole idea is to gradually develop the entire team to be specialists in that niche.
One of the things I find most surprising about this article is that it presents niche marketing almost like it was a new idea. The benefits of target marketing have been documented and discussed for years. What holds most advisors back, however, is their superficial understanding of the concepts. To be most effective, advisors must describe their niche in enough detail to identify specific issues that group faces that are different from the general population. And that is, in my experience, a lot more specialized that is commonly understood or discussed.
I still disagree with Gray on one fundamental idea – that web search will supplant referrals in importance. Advisory firms who can successfully describe their niche thoroughly enough will realize far more referrals as well as more prospects through web searches. Sophisticated target marketing will bring more clients from all channels.
I believe the future of financial advisor business development will be the realization that to really succeed requires a specialization. I can envision a time when the trade press no longer runs articles like the one discussed here about the benefits of target marketing because differentiation through unique expertise will be widely understood as a requirement for establishing a viable business.