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Online Lead Generation Services for Financial Advisors

In recent years, online lead generation services for financial advisors have proliferated as advisors searched for new ways to find prospects and grow their business. What is a lead generation service? In short, it’s a business that will find and refer prospective clients to you for a fee. These vendors offer a tempting pitch: “No more cold calls, no more seminars to run; instead, we’ll bring prospects to you.”

Pandemic-induced changes in our business practices have only increased the attractiveness of finding prospects online. Before you sign up with a lead generation vendor, though, it’s wise to understand how the services work—and how they’re working out thus far.

How Do Online Lead Generation Services Work?

Most vendors in the retail investor lead generation space operate in a similar manner—they offer free online content, such as white papers and retirement calculators, to identify consumers who need a financial advisor. When consumers download or use one of the tools, they’re directed to a questionnaire asking them about their net worth, investment needs, and location. Upon completion of the questionnaire and agreement to proceed with the offered service, consumers are matched with an advisor who participates in the program and who may be a suitable fit to manage their assets.

As for fee structure, online lead generation services for financial advisors charge for each referral based on the prospect’s disclosed asset level. (A service might charge $100 for assets up to $250,000, $150 for assets between $250,000 and $500,000, and so on.) Participating advisors receive prospect contact information via email and text alerts. At this point, it’s up to advisors to reach out and connect. If a prospect responds and engages with the matched advisor, the program has worked perfectly.

How Effective Are Lead Generation Services?

Are online lead generation services the end-all solution that will transform marketing in our industry? In a word, no. These services are far from perfect. Often, consumers who fill out the questionnaires and are matched with advisors will not engage meaningfully—or even talk to the advisor at all. As with any marketing venture, there are no guarantees of a successful outcome.

Effort involved. As you’re aware, the old-school method of converting a prospect to a client involves a tedious process that requires many touch points. The situation with new retail investor lead generation services is no different. Most services in the space require a considerable amount of work.

As recommended by most online lead generation programs, the best practice is for an advisor to touch base with prospects immediately after receiving their information, even if that happens outside of working hours. So, advisors who do not have the desire or capacity to immediately engage with prospects aren’t a good fit. On the other hand, advisors who are actively looking to grow their book will generally find value in participating.

Conversion rates. In general, lead generation services claim to deliver about a 5 percent conversion rate on referred consumers. At Commonwealth, our experience to date suggests this is an overly optimistic number. According to Commonwealth data from October 2021, a conversion rate of approximately 2 percent is more common. Even assuming a 2 percent conversion rate, however, onboarding one or two ideal clients may cover the cost of the service.

What Are the Regulatory Requirements?

The applicable regulations include SEC Rule 206(4)-3, which governs payment to entities that solicit clients on behalf of an investment advisor. Investment advisors engaging in lead generation relationships should ensure that their policies and procedures are reasonably designed to achieve compliance with Rule 206(4)-3. At a minimum, those policies and procedures should require:

  • A written agreement with the lead generation service

  • Delivery of a disclosure document to the client describing the investment advisor’s relationship with the service (including fees paid to the service)

  • A regular assessment of the service to ensure that it is meeting the compliance obligations outlined in the agreement

Are Lead Generation Services a Good Fit for Your Practice?

To make a lead generation service work for your practice, you must be willing to put in the time and effort required, especially in quickly reaching out to new matches. Mastering this will likely require trial and error. In addition, it’s wise to view a lead generation program as a single piece of a holistic marketing plan. In other words, working to find prospects through traditional marketing methods, such as networking, referrals, or even running seminars, may still be necessary. That said, online lead generation services for financial advisors have the potential to be a powerful tool for growing a business.

Please consult your member firm’s policies regarding lead generation services prior to using.

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