Business development and lead generation is a challenge for most financial advisors. After all, even though we’ve (thankfully!) left the days of cold calling scripts behind, the reality is that you can’t get paid to give advice until you convince someone to pay your for that advice! And you can’t convince them to pay you until you find prospects to get in front of in the first place!
In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, we look at the question of whether it’s possible to outsource business development to someone else. Is it feasible to hire a business development person, or otherwise pay a third party to bring in clients for you?
The good news it that there are some options out there, from third-party websites that provide financial advisor lead generation (not necessarily a ton, but a few they do bring in some clients!), to forming an RIA solicitor agreement to pay an accounting firm or other center of influence for business development referrals.
Of course, an RIA solicitor agreement could be formed with an individual business development person as well, but the irony is that the small firms that need the most help with business development probably won’t be able to afford the best business developers, who instead will get hired by a larger firm, or simply go to form their own. In fact, many of today’s most successful advisory firms were built by a partnership with one person who was especially good at business development, and another who was better at delivering planning, managing investments, and/or operating the business.
And in the end, if the problem is that you just want to provide financial planning advice but not be responsible for finding your own clients, you may want to look at merger or tucking into a larger firm that does have its own organic business development process. Your upside may be more limited as an employee instead of an owner, but it also can give you more time to do the financial planning work with clients you enjoy the most anyway, if that’s really what you want to do!
(Michael’s Note: The video below was recorded using Periscope, and announced via Twitter. If you want to participate in the next #OfficeHours live, please download the Periscope app on your mobile device, and follow @MichaelKitces on Twitter, so you get the announcement when the broadcast is starting, at/around 1PM EST every Tuesday! You can also submit your question in advance through our Contact page!)
#OfficeHours with @MichaelKitces Video Transcript
Welcome, everyone! Welcome to Office Hours with Michael Kitces!
For our topic today, I want to talk a bit about business development, and the whole process of how you get clients as a financial advisor.
This cues off of a question that came in from Russ. [I’m reading the question here] Russ said:
“I’m curious to hear your thoughts, Michael, on hiring and outsourcing business development to a third party. Not referring to lead generation sites or client prospecting sites, but as like a marketing strategy, can you outsource business development to a professional or like someone who prospects on your behalf based on your niche or whatever parameters?”
Russ finishes his question with:
“What do you think about this option for small firms of trying to outsource the sales and business development? Basically, are there people, are there entities out there that do this on behalf of RIAs?”
Great question, Russ. I find for a lot of newer financial advisors coming in, this whole area of business development is one of the hardest. Anybody who’s been in this business for a long time – by a long time, I mean more than about 15 years or so – almost certainly started in the financial services industry as an insurance salesperson or an investments or mutual fund salesperson. The old model was you started at sales, and then later, you actually learned financial planning and how to serve your clients better.
So this whole phenomenon now of people coming to the industry to be financial planners and then having to figure out how to get clients is actually a new phenomenon for the industry to deal with. It’s been a hard adjustment for those who want to build an advisory firm, particularly if you’re going to own and build your advisory firm.
No Cold Calling Scripts, But Fiduciary Advisors Still Have To Sell (Themselves)
In other words, the product-driven cold calling scripts may be gone, but getting advisory clients is still a sales job. That’s still a big piece of what financial advisors do, not necessarily because we’re still selling products, but because you’re selling yourself, because you’re selling your advice services. You still have to convince someone to pay you before you can then get paid to give them advice. That is a crucial part of the process of engaging a prospective client. And so it becomes a blocking point, I find, for a lot advisors who just came into business. Because they want to get paid to give people advice, and then realized the first thing they have to do is convince people to pay them for the advice just to get it started!
So getting back to Russ’ question, can you outsource this to third party? My answer is “kind of, yes, sort of, but not probably quite in the way that you framed it here.” There are a couple of options or ways that advisors do this, though, so I want to walk through some of the options.
Third Party Websites For Advisor Lead Generation
So number one is that you can actually look at some of the third party websites out there that I call “lead generation” sites. You’ve got platforms where you pay to be on, like Paladin Registry. You’ve got memberships associations and networking groups that do this, so NAPFA, Garrett Planning Network, or XY Planning Network, where you have to pay to be a member, but one of the member benefits is that they have a consumer section that drives leads to their members. Then you’ve got the free solutions like Investopedia Advisor Insights, NerdWallet, and similar places where you can do Q&A and answer consumer questions in exchange for hopefully getting lead generation off of it.
Now, results on these seem kind of mixed at best. I do know some advisors have gotten a couple of clients from Paladin. I know a lot of advisors actually that have gotten leads from NAPFA and some of the network sites I mentioned.
The Q&A sites seem to be much less effective, though. I think it just comes down to the self-selection of where people go. Consumers who go to NAPFA go there because they’re looking for an advisor. Consumers who land on a place like Investopedia Advisor Insights or NerdWallet, they’re there because they typed a question into Google. By definition, they’re people who ask their questions off Google not ask the questions of advisors.
I think that’s the fundamental reason why you just don’t see the kind of lead generation follow-though from some of those big sites, even though several have huge audiences. And for those of you who follow Office Hours, you know I ranted about this a few weeks ago, about being very cautious of spending your time participating on third party Q&A sites like Investopedia Advisor Insights.
Why Is Prospecting So Hard?
But even at the meta level, all of these sites actually still struggle from the exact same challenge that advisors do: if they want to pass leads down to advisors, they have to get the leads, right!?
So these websites have to do their own marketing or PR or advertising, whatever it is that those sites are going to do to bring a high volume of people in so that they can not only drive through leads but drive through leads for what could be dozens or hundreds of advisors on their site as well.
And it becomes the same blocking point for them. I think it’s one of the reasons why you don’t really see any huge massive sites that can say “Hey, sign up for a profile here, and you’ll get zillions of leads.” Because everybody struggles with this phenomenon of “how do you actually get consumers to want to engage an advisor”, particularly given that we’re such a low trust industry.
Heck, you look up the consumer trust surveys. I think we’re like right between car salesmen and Congress at the very bottom of the scale! So it’s a hard business for anybody, any website, any platform to drive a lot of activity and to really gain traction.
Can Business Development Be Outsourced For A Solo Advisor?
Now, some other options that are out there. Your question framed up the issue as:
“Can you outsource this to a business development person?”
It’s tough. The challenge for this, at the most basic level, is that if you found someone who is that good at getting financial planning clients… they would probably own their own financial planning firm! Because they can get clients to bring them in! And that’s the blocking point for most firms!
Or worse, if they’re that good at sales and business development, they’d probably be employed in some other advisory firm, already doing sales and business development. They still wouldn’t necessarily be looking to do one-off relationships with small RIAs.
Good Business Development Development People Have Better Opportunities?
That becomes, I think, the biggest challenge for this kind of model of trying to get a person who’s good at business development and just pay them on the margin. The people who are best at that, no offense, are going to have better opportunities than your solo advisory firm, either to make their own firm or to work as a professional business development firm in another much larger firm that can pay more.
If you want to try to hire one of those people full time, I think that’s an option. And again I’m actually seeing that increasingly in large firms. But obviously, that’s not an option for a lot of us in the small solo practitioner environment. We can’t afford to hire someone in order to do that. We’d pay so much money upfront just to give them the bonuses and the compensation incentives. We’d run out of money paying them their bonuses before we made it back later in stable clients with recurring revenue.
Time To Find A Financial Advisor Partner?
Now, I do think there are a couple of other options that fit into this context that are worth recognizing. The first is if you can find someone who’s good at business development, it may be hard to outsource your business development to them, but it may be a nice option to make them your partner in the business. Actually partner with them, work with them.
When I look out there at the advisory firms that have been successful, many that are pretty big today, and you go back to their roots, in most of those cases, they were successful because they were the combination of one partner who was really good at business development and one partner who was really good at running and executing a business and delivering on the financial planning. Sometimes there was a third partner who was really good at the investment stuff, if they were doing investment management.
In other words, that blend of people is actually a really powerful opportunity. What it means, simply put, is if you partner with someone who’s good at business development when you’re good at the other stuff, the combination of what the two of you can build together is bigger than what either of you can do alone. So you’re not giving away half of your business to someone else to make less. You’re building something with a partner that’s bigger than what either of you can do individually. I can see the hearts coming through tap-tapping on Periscope here. That seems to be resonating with some of you.
At a minimum, though, recognize that opportunity: that partnership is a really powerful opportunity for you to do what you do well, which maybe isn’t the business development, and for them to do what they do well, if they are good at business development. Because they may be great at business development, and not necessarily such a great financial planner or manager or a person who operates the business. That’s your opportunity to work together.
So even if you can find that person that’s great at business development, my first thought would be: should this person actually be your partner, instead?
Is Business Development Training Helpful?
Now, a question came in [from Periscope] as well that I want to answer here:
“So what do I think of business development coaching programs like Oechsli Institute and folks like that?”
I think financial advisor sales training is a huge plus. In a world where most of us are just not trained how to do business development, the reality in our industry, all the “good” training programs that taught sales and business development were in captive insurance agencies, and many of them are have just steadily wound down over the past 10 or 20 years, because, unfortunately, they learned the hard way what happens. You train a good business development person, and then they go and break away and do their own independent thing. So the big firms dialed back on their trainings.
So the independent training and consulting folks have now started to crop up. You’ve got everything from a couple of good books out there, such as the good one Bev Flaxington recently did on just sales training for financial advisors. And I do hear good things about Oechsli Institute. I also hear good things about John Bowen’s CEG program. You can definitely look at programs out there that help teach and train you about how to do business development, if maybe this is a challenge or a fear of yours and you don’t know how to get over that hump or you want more help with it.
Now, again, my world philosophy, if business development is just not your strength, then frankly, first and foremost, I’d encourage you to see if you can find a partner where that is their strength, and let the two of you build something even better together. But I recognize that’s not always an option for some of us. And so if it’s not, yeah, I do think there’s value if you’ve never been through a process of really being trained on how to do prospecting and business development in a systematic, consistent way that you can execute repeatably to gain some momentum and develop business. Folks like Oechsli and John Bowen’s group, I think, are a really good path to take a look at.
Time To Tuck-In To A Larger Firm?
Now, other options out there that I would think about as well: the next one that we see increasingly in the industry is what are called “tuck-ins.” And a tuck-in firm is basically when you as maybe a small or a solo independent advisor decide to tuck your firm into a larger one that has a bigger platform. And often a bigger firm that also has some of its own process around sales and business development. So maybe you don’t quite need to beat the streets of prospecting so hard.
So firms like Edelman Financial Services fit this framework, United Capital as well. Even for our own, for Pinnacle Advisory Group, we’ve tucked in a couple of advisory firms over the years where they just wanted access to more infrastructure and resources so that they could just focus on servicing their clients and not have to deal with some of the other challenge of the business.
I’ve been in the camp for a long time that I think this is kind of the future of where the industry is going to be going. Not that every small solo advisor is going to go away. And I know some people who have fantastic, amazing lifestyle practices, making extraordinary money working solo. So I’m not trying to preach the death of the solo practitioner here at all.
But there’s just a lot of stuff that goes into being your own independent business owner. And for a lot of us, it’s just not a great fit. We spend so much time trying to be business owners and prospectors that we never get around to the part that we like, which is serving clients and giving them financial planning advice. So if that’s the blocking point that you’re feeling right now, maybe you should be looking at a larger firm where you could tuck-in or affiliate under their platform. And this can happen in lots of ways. Some of them are mergers or acquisitions. Some of them are hires. Some of them are partnership deals. So there’s lots of different ways that that can happen. But consider whether you need to look at that.
Hiring An RIA Solicitor
Now, the closest option that does fit Russ’s question about outsourcing your business development is the role of having a solicitor. And this is a path that’s available for RIAs, where you can actually craft an agreement with a third party who will operate as your RIA solicitor.
With an RIA solicitor, they will solicit the public to do business with you (or your firm) as a financial advisor. And if they’re appropriately registered and disclosed as a solicitor, you can pay them. You can pay them business development dollars. You can pay them revenue sharing dollars. You can give them a bonus. It’s actually a relatively common practice out there.
Now, the dynamics of RIA solicitors vary a little by state, and how the state treats its solicitors. For many of them, if the firm is going to be a solicitor, they actually have to become an investment advisor, either by setting up their own RIA, or become an IAR of your RIA. They’ll have to go take their Series 65 in order to do it legally.
Some types of businesses aren’t even permitted to do this. In many states, law firms can’t do this, because it’s viewed as a conflict of interest for the lawyer to be getting compensation for referring clients to a particular advisor. CPA firms tend to be a little more flexible about this. So I find in practice, solicitor arrangements seem to be a deal that gets done with CPAs more than attorneys.
But you can go out and actually form RIA solicitor relationships. Then that accountant goes through his or her client base. So you can approach them by saying:
“Hey, Mr. Accounting firm, you’ve got 500 tax and accounting clients. If you refer the qualified ones to me to do investment management business and financial planning, I will pay you a revenue share.”
Maybe it’s a 10% of revenue, 30% of revenue. Maybe you pay for one year. Maybe you pay for five years. The deals vary a lot in the details of exactly what they look like. But you can actually go through the process of getting them set up as a solicitor, disclosing on your ADV, getting them through the 65, getting them appropriately registered, and then actually paying them to solicit clients.
Now, the biggest irony of this path to me is if you’re really good at building relationships with third party professionals to make them be your solicitor, you are probably actually good enough forming third-party relationships that you could actually just do cross-referrals with them instead! Take your clients who need accounting services to the accounting firm. And the accounting firm will send some clients who need financial planning services. And then you might not actually have to pay for the business development at all.
It’s just a good strategic partnership. And I know some folks like Bowen’s training program spend a lot of time talking about just how to make effective, strategic partnerships with centers of influence. Maybe you’ll pay them, but maybe you really don’t have to pay them if you actually just do a good job of forming those relationships in the first place.
But be aware, solicitor agreements are at least an option to really pay for business development. It’s probably the closest to what you’ve been talking about here. And I guess you could even do that with a standalone just salesperson. But realistically, again, if it’s just one person who’s that good at sales, they’re probably going to form their own firm, be your partner, or get a business development job somewhere else. The solicitor arrangements tend to work well with things like partnerships with CPA firms, because they’re still first and foremost a CPA business. They don’t necessarily want to launch financial planning services. They don’t have the people and skillset to do it. But they wouldn’t mind getting paid for their clients who need it. So they’ll refer to you. You’ll pay them through the solicitor agreement. You get clients, and you solved a bit of a lead gen problem.
But ultimately, as we wrap up here, unfortunately, the reality is there’s no magic formula on sales and business development, just some training and practice and hard work. At best, it’s about creating a process that you find works for you and then just iterating and repeating on it over and over again. And there are platforms like Oechsli Institute and Bowen’s group that help train you how to do that.
But still, you’ve got to develop a process and fight through all the nos and rejections you’re going to get, in order to get to the subset of prospective clients that say yes. And as long as you’re an independent advisory firm owner of yourself, that’s going to remain on you. At least if you got a partner who’s good at that, maybe the partner can do it, because you do other things in the business. But this is a fundamental part of being an advisory firm owner. And if that’s not a great fit for you, again, I’d encourage you look back at a merger, a tuck-in, or some other kind of relationship where you can leverage the resources of a large firm, including perhaps even leveraging some of their prospecting abilities, so that you can focus on serving your clients and closing them and bringing them on board, but you don’t have to go out there and beat the streets.
So I hope that’s helpful as some food for thought. This is Office Hours with Michael Kitces, every 1 p.m., East Coast time on Tuesdays. Hope this is helpful for you, and thanks everybody for joining! Take care!
So what do you think? Have you ever hired an outside business developer? How did that work out for you? Have you used RIA solicitor arrangements? Please share your thoughts and experiences in the comments below!