Reach your target client in order to generate organic growth

Wealth managers seeking long-term growth, in our view, have reached a pivotal moment. An extended bull market has helped step up wealth creation among affluent and high-net worth (HNW) households. But that client base has been aging and spending down its money. With a large wealth transfer pending and the competitive landscape becoming more competitive, how can a wealth manager generate organic, sustainable growth?

Over the past decade, we have seen that wealth management firms have leaned heavily on inorganic growth strategies— specifically market appreciation and merger and acquisition (M&A) activity —  in order to increase assets under management (AUM). Netting out market performance, the average firm has achieved limited-to-flat AUM growth during this period.¹ M&A opportunities are still out there, but higher valuations and consolidation among wealth management companies make for a challenging environment. Experienced wealth managers with clients and accounts have more options when affiliating and can demand more in return.

According to the Practice Innovation Index (PII) respondents, wealth managers have grown their AUM at a compound annual growth rate (CAGR) of 19.7% over the past five years. That includes inorganic growth. Across channels, wealth managers lag behind registered investment advisors (RIAs) and brokers/dealers, though practices dedicated to the affluent and high-net-worth come out slightly ahead.

Organic growth — adding new assets from new or existing clients — has become increasingly challenging in the current environment. We believe it’s nonetheless necessary for sustaining a business, attracting and retaining staff, and adding value to the company. In our view, generating organic growth drives a firm’s success, and wealth managers should go about it intentionally. Thankfully, those looking to grow their practices in the long-term have a possible path forward.   

• Identify ideal client type
• Articulate value proposition
• Develop strategic relationships

Let’s take them in order.

Identify ideal client type

It’s impossible to map a course if you don’t know where you’re going. In this case, the “where” is more of a “who.” Who is your ideal client?

The addressable market for wealth managers is significant, with $78.5 trillion in financial assets spread among US households as of the end of 2023. Affluent households, those with more than $2 million, make up just 6% of the population but hold more than $54 trillion in assets. That accounts for 69% of the total investable assets in the US, up from 51% (or $15.9 trillion) in 2013.¹

This high-end concentration, in our view, offers wealth managers a significant opportunity, but it also requires a calculated approach. Affluent clients want personal service that caters to them. This may include comprehensive wealth management, tax and estate planning services, and more complex products such as separate accounts and alternatives.

Identifying the ideal client requires more analysis. Client segments may be further broken down by various attributes, including occupation, demographics, age, and income, not to mention the needs and goals that may accompany those attributes. Additional research may enable practices to tailor services and foster growth through more targeted referrals and strategic partnerships. 

Articulate value proposition

With a client type in mind, a wealth manager may lay out their value proposition, which may inform the marketing approach and service model that most resonates. This means highlighting the unique potential benefits that matter most. Over 40% of wealth managers don’t have a consistent marketing message, while only 10% have a clear, compelling, and consistent marketing message.²

Focusing on a narrow niche, wealth managers have an opportunity to address specific client needs, provide personalized services, and stand out from competitors. More to the point, they have an opportunity to also communicate this information in the marketplace. A well-defined value proposition may help attract the right target clients and generate referrals among other like-minded individuals.

Develop strategic relationships

The wealth management industry faces a record generational wealth transfer. And heirs often don’t keep the same wealth manager. With $105 trillion projected to change hands in the coming decades,¹ wealth managers stand to lose significant AUM. Engaging the next generation of wealth inheritors is in our view crucial to retaining assets and developing sustainable long-term growth.

We believe wealth managers should consider proactively building relationships with their current clients’ beneficiaries. These members of Gen X and Gen Y (aka Millennials) may soon need comprehensive wealth transfer services that you can provide. Given the human lifespan, the eventual loss of a client is inevitable. Acting proactively rather than reactively may help prevent the loss of their assets as well.

Wealth managers should, in our view, find ways to develop genuine relationships with client children earlier in the lifecycle. Take the time to understand their priorities, needs, and communication preferences. Work to mitigate this looming business risk; when the primary wealth holder passes away may be too late. We believe multi-generational planning is essential to retaining these relationships, yet only 11% of PII respondents provide multi-generational and transition planning services.²

To address the needs of current and future clients, wealth managers should, in our view, consider incorporating multi-generational planning into their practices. In our experience, early engagement with clients’ children and/or spouses encourages more genuine relationships, builds trust, and increases the likelihood of long-term client retention. By catering to multiple generations, wealth managers have an opportunity to build long-term relationships and ensure business continuity. Deeper client engagement may help drive sustainable growth.

Take the next step

Effective marketing strategies and business development may help grow your AUM and soften the market’s impact on long-term growth, but we have seen that reaching that target client takes work. It starts with figuring out your ideal client type — one who may be receptive to a well-articulated value proposition. Strategic relationships may then develop, and, with strong leadership and a dedicated team, organic growth may follow.

Invesco Global Consulting can help.

Our "'Crafting a high-performance practice’ Toolkit” brochure³ is  designed  to help you identify your target client and deliver the expertise they need. Improve satisfaction. Operate efficiently. Generate growth.