In recent years, advisory firms have faced a persistent slowdown in organic growth, with average RIA growth rates declining from 9% in 2017 to closer to 3% today. At the same time, merger and acquisition (M&A) activity has surged to record highs, as firms increasingly look to inorganic growth in order to scale. While common explanations for this shift include the desire to expand service offerings, attract more profitable clients, or solve succession challenges, a less visible – but arguably more fundamental – driver is the difficulty of scaling marketing itself. As firms grow, the very marketing tactics that fueled their early success often become increasingly expensive and less efficient, to the point that pursuing organic growth may no longer be financially compelling relative to M&A.
In this article, Kitces Director of Research Mark Tenenbaum and Senior Financial Planning Nerd Sydney Squires discuss why a firm's organic growth slows as the firm matures – and how firms can resist and even reverse this effect.
As a starting point, marketing costs must be weighed holistically, considering not just 'hard' dollars spent on tools, events, or advertising, but also the 'soft' cost of advisor time. Kitces Research shows that while the typical growth-oriented firm spends about 3.2% of revenue on hard marketing expenses, roughly 71% of total marketing costs actually stem from advisor and staff time. For a newer firm with limited revenue but excess capacity, the advisor's time is relatively inexpensive, so they tend to favor marketing tactics that require time rather than money.
However, as marketing efforts take effect, the firm grows, advisor income rises, and capacity fills. As a result, the cost of each hour spent on marketing increases dramatically, driving a powerful anti-scaling effect. While the hard costs of marketing generally decline as firms grow, soft costs tied to advisor time eventually climb to nearly 8% of revenue for firms at $5 million or more, causing total marketing costs to rise as a share of revenue.
This phenomenon can be described as a "marketing capacity crossroads". Firms then face a strategic choice to maintain firm growth. They can either accept slower organic growth and supplement with acquisitions, or fundamentally redesign their marketing approach to rely less on advisor time and more on scalable hard-cost investments or delegated team members. Larger firms where advisor time comprises less than half of marketing costs achieve materially lower revenue acquisition costs than peers who remain heavily time-dependent!
Yet navigating this crossroads requires a deliberate shift. Advisors must examine which parts of their marketing truly require their unique expertise and which can be eliminated, automated, or delegated. Even high-touch strategies like events or content can often be partially delegated to team members who handle the operational and strategic groundwork, leaving the advisor focused only on the elements that genuinely demand their presence. In some cases, firms may need to invest in entirely new marketing channels – such as SEO, paid advertising, or outsourced marketing expertise – that may complement current marketing efforts, but are ultimately less constrained by advisor bandwidth.
Ultimately, the firms that sustain strong organic growth at scale are not those that simply work harder at the same tactics, but those that reengineer their marketing to decouple growth from the rising cost and scarcity of advisor time. By recognizing and proactively addressing the marketing capacity crossroads, advisory firms can ensure that their marketing strategy evolves alongside their firm!Read More...
