Optimizing Organic Growth: It’s More Than Just Referrals

Successful organic growth entails more than just one-off referrals, especially when it comes to centers of influence (COI) referrals from accountants, attorneys, and other professionals who manage valuable client relationships.

The most productive organic growth programs do more than just deliver qualified prospects: they can expand your service offering, develop new channels to increase revenue, and capture more share of the wallet.

First, top RIA firms have always looked externally for growth. And here, COI/vendor referrals are a tried-and-true approach that still works. These relationships leverage existing synergies between businesses. There’s little capital outlay needed. The agreements and economics are usually straightforward. And the barrier to winning new client relationships is lower because potential clients are, to a large extent, pre-qualified—referred to you by a source they trust.

The downside to loose affiliations like these, however, is that they still require a lot of time investment for an uncertain or inconsistent result. You still must spend time building a relationship with COI, whom many other advisors and wealth managers are pursuing. You still must come to the table with a differentiated value proposition.

Custodian referrals, in particular, are reserved for a select group of advisors who can take on complex clients that are beyond the capabilities of the custodian’s branch staff—that, in turn, requires building relationships with your custodian’s relationship manager, local branch manager, and a potential client.

And in the end, there is no guarantee of referral flow. You will still rely on your partner to be a willing participant, and that requires marketing and coaching your partner to build a pipeline of prospects.

We believe that, rather than thinking about these potential partners for their one-off referral potential, advisors would be better served by looking at them for their business development potential.

For example, when you add yourself to a CPA’s referral network, the reverse is also true: they are potentially adding themselves to your network. Both partners expand their service offerings in a way that’s potentially attractive to clients. Further, when trying to break into a custodian referral program for high-net-worth clients, wouldn’t it be better to approach them with a differentiated, comprehensive multi-service offering? (Assuming you don’t have those capabilities in-house.)

If you’re simply relying on a CPA, attorney, and other partners for referrals, and you’re not considering them as an additive to your own service offering, you’re missing out on a large potential benefit.

Strategic referral partners can add important complementary capabilities to your practice without building anything from scratch—no capital investment, hiring, or training. And having a ready-made network of partners can attract discerning clients who require a more full-service, holistic approach because you come to the table with a full team instead of just you.

However, this twist on conventional CIO referral programs requires a slight shift in focus and more work in marketing and branding. It heightens the stakes when selecting COI partners to work with because their brand and service quality will now directly impact your own, creating potential reputational risk for clients you refer out to them. And it may require revamping your marketing materials and website to highlight this newly expanded service offering.

But ultimately, advisors looking for organic growth may get more “bang” for their investment of time and resources by building referral relationships with firms that enhance the RIA’s business development rather than just looking at those partners to provide lead flow.

RIAs looking for high-quality organic growth should also consider strategies that capture a greater “share of wallet” for each client while also potentially adding new categories of clients.

One way to do this is by building an in-house asset management capability. Firms that primarily use third-party investment management solutions –e.g., ETFs, mutual funds, separate accounts –are sending potential revenue out the door in the form of underlying expense ratios for external vehicles. By hiring a Chief Investment Officer (CIO) and building your own asset management capability, you may be able to reduce the client’s overall investment expense while increasing the firm’s “share of wallet,” i.e., the firm earns a steady flow of asset management revenue on top of the fee revenue from each client relationship. This new capability can also offer a differentiated, bespoke experience that may attract higher net-worth clients, stickier assets, and even entirely new types of clients (e.g., 401K offerings, white-label portfolios, tax-efficient portfolios, etc.).

Finally, advisors looking for more certainty in referral programs also have an organic/inorganic hybrid option: acquiring a minority stake in a CPA firm. Such deals are attractive to CPA firms, many of which are jealously eyeing the revenue growth and margins in the wealth management business. Selling a minority stake is a quick, easy way for a CPA firm to grow by locking in an annuitized revenue stream from referred clients. The RIA, in turn, gains a ready-made, exclusive flow of prospects from the CPA.

While this approach can be more productive than a typical third-party referral partnership, it’s also more time and capital-intensive. Aside from the challenge of finding the right partner, there are compliance and legal tasks (e.g., the creation of operating agreements or new legal entities to channel revenue to the CPA, etc.). The RIA also must build a go-to-market strategy and roll it out in coordination with the CPA firm. There’s also a technology component to all this: integrating their CRM with your CRM systems, creating automated reporting to track referral revenue, etc.

The most important lesson here is that optimizing organic growth requires looking beyond the conventional one-at-a-time approach to client referral and acquisition. Strategic referral partners can do more than just send you leads; they can help you build a more marketable and valuable practice.

In this light, organic growth is a business development challenge: attracting new clients, more valuable clients, new types of clients, and retaining more share of the wallet by increasing the value of your service offering and client experience.