The following originally appeared in the Advisers' Consultant, a monthly practice management newsletter published by InvestmentNews.
E. Jeffrey Roof is president and founder of Roof Advisory Group Inc., which he launched in 1998.
He recently made time to discuss his firm and the industry.
Q. The InvestmentNews/Moss Adams Financial Performance Study of Advisory Firms found that many firms have struggled to add clients over the past couple of years. How much emphasis do you place on adding new clients each year?
A. Adding clients is always an initiative. We place a strong emphasis on overall firm growth in revenue, and adding clientele is a key component. In the study, we had a 15% growth in new clients, versus a top-performers median of 8.8%; it's not quite twice as much, but it's close. So we have not struggled. But the other part that's important is the attrition rate for clients, and we have had zero in that same time frame.
Our view is that there has been no value in adding clientele if you are losing clients. We believe that if we maintain growth, it serves our existing clients' needs because we are able to add resources on an ongoing basis.
Q. Your firm has an internal process for handling referrals. How does that process work, and what led you to develop it?
A. Since the very beginning of the firm, we made a concerted effort to develop a referral network. We've had the good fortune and great deal of success, particularly with the attorney niche.
We tell them that we have a better approach [for their clients] than major banks and brokerage firms by being [a registered investment adviser].
In fact, many of our referral sources have also become our clients because they have been impressed with the results that our investment process has delivered. Getting an introduction from satisfied clients is a key contributor to adding new clientele.
Q. How do you strike a balance between serving less-profitable clients, while also making sure that your biggest clients get the service they deserve?
A. We have a focused client base that we can serve well, which means that we have historically had a very high average asset size per client and average revenue per client. We would not be able to have a lower client base if we did not, so it benefits the firm and our clients. We feel that it's important for us to be focusing on what we're best at, and that would be working with clients with above $1 million in investible assets who are current income earners. Frankly, we believe that that's one of the most underserved in the marketplace. Once they have accumulated over a million dollars in assets, they are likely edging over the horizon at their retirement and their challenges are more complex.
Q. A lot of firms over the past couple of years have raised their fees, in part to make up for lost assets. How do you decide when to raise fees?
A. We have not raised our fee rate since the inception of the firm; what we have done is raised our minimum fee on assets. We don't have that disparity [in client assets] that some firms have, so it has not been a big revenue boost to [raise the fee rate]. If you focus on what you do best, you don't have to worry about trying to fit a client in your paradigm, because there are plenty of clients out there who can pay those fees and fit in the paradigm. That's better than getting the business in the door and then figuring out how to make the client profitable.
Q. Another trend we are seeing is firms adding a business development officer to essentially serve as a rainmaker. Have you added a dedicated BDO to your staff or made any other changes to your internal staff as your firm has grown?
A. We do not have a dedicated business development officer, but we do have a focused business development function among our client-servicing staff. We all have business development and networking responsibilities and accountability. It's not captured in one person, because our view has been that we've been able to combine firm outreach with internal servicing and marry the two concepts together. We've also had a very clearly defined growth incentive program that includes bringing in new clients, growing existing assets and a servicing component. The incentive program makes sure that all of these facets work together, and it has helped get all of us engaged and pulling in the same direction.