What Financial Advisors Can Learn From Venture Capitalists And Robo-Advisors


As financial advisors increasingly shift from their transactionally-based roots to providing ongoing financial advice (and being paid an ongoing fee for doing so), the value of getting a new client is changing dramatically. While in the past the “value” of a client was little more than the commission earned on the transaction they did, in a world where many advisory firms retain 95%+ of their clients, the lifetime value of a client over time could be as much as 20X that amount!

In fact, the lifetime value of an ongoing client relationship is so high, that advisory firms could arguably spend far more on marketing, business development, and (extra) services for clients at no cost, simply to accelerate client referrals, growth of the business, and to increase retention rates that further improve the lifetime value of the client and the economics of the business. Yet despite this opportunity, the typical advisory firm spends barely more than 2% of its revenue on marketing, and often charges separately for each “value-add” service (which can actually discourage clients from taking advantage of it!) to ensure clients are similarly profitable each and every year.

By contrast, the “robo-advisor” firms have been heavily focused on just reinvesting into the solutions they provide clients to stir word-of-mouth (i.e., referral) marketing and improve client retention, and are raising significant funding from venture capital firms that recognize advisory services are so profitable in the long run because of the high lifetime client value that it doesn’t matter if these firms generate no profits in the near term as long as the growth continues! Of course, most “traditional” advisory firms don’t have access to the capital that robo-advisors do, but the point still remains that perhaps today’s financial advisors could learn something from robo-advisors and their venture capital funders about recognizing the significance of high lifetime client value and how to (re-)invest in their advisory firms for long run business value and not just short-term profitability!

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