Buffett’s Five Golden Rules for Advisor Marketing

How an advisor nurtures their client base varies greatly.

Attracting prospects who resemble an ideal client makes it much easier to fence in a herd.

Buffett on a moat around your clients – “Nurture existing clients to behave like your ideal clients and look to acquire new clients who have the attributes of your best ones.”

2. The holding period is forever on marketing winners

As Buffett has been fond of saying, invest in great businesses, the entire company if you can, and use a long holding period. Hold forever, if possible.

I can’t tell you how many conversations with advisors and teams go like this:

Me: “Tell me how you built your practice successfully to this point?”

Advisor: “We had his great monthly seminar program/strategic alliance/captive relationship with a company that yielded one new client every month.”

Advisor: “But somewhere along the way, we stopped doing that because the program stopped working, and we never reactivated it. We only get a trickle of referrals now.”

Don’t abandon winners that are working. With minimal care, you should nurture most marketing winners to stay that way.

Buffett on sticking with marketing winners – Don’t abandon winning marketing programs before the market does.

3. Add a margin of safety in your marketing plan

Your firm may fall short of your marketing, new client, and income goals because you don’t have what Buffett calls a “margin of safety” in your marketing plan.

Buffett was a student of famous investor and business professor Ben Graham who taught the concept of the margin of safety in purchasing investments.

A margin of safety with investments is when securities are purchased at prices sufficiently below their underlying value to allow for human error, bad luck, or extreme volatility.

Like an investment thesis, an annual marketing plan is built on estimates and uncertainty that advisors will validate in the marketplace as tactics are executed.

A wide margin of safety ensures that a marketing plan and its tactics are not wiped out by errors or the need to experiment with tactics.

One of the top advisors at Raymond James once told me, “I have seven marketing tactics working all the time. I don’t know which one will produce a new client each month, but I know over time, each one will produce quality relationships.”

For example, if your goal is to add 9% in assets under management in 2023, build in a margin of safety by creating a plan to achieve 15% growth. Don’t rely on a single channel or tactic; use two or three different programs to achieve your goal.

Buffett on a margin of marketing safety – “Build a margin of safety into your marketing plans such that even if many things go wrong, you’ll still achieve your new client and income goals.”

4. Invest in new client acquisition

Buffett was introduced to GEICO in 1951, but not until 1996 did Berkshire Hathaway purchase the entire company.

With the financial backing of Berkshire, GEICO’s direct-to-consumer model of customer acquisition could be levered up with marketing investments to profitably acquire more customers.

Once Berkshire gained control of the firm, its marketing budget was estimated to have multiplied almost 7.5 times in the initial years of ownership, from $33 million in 1995 to $242 million in 1999.

GEICO invested heavily in customer acquisition by supplementing direct mail appeals with the GEICO “gecko®” featured on TV and in other media. The company was also an early adopter of Google ads and introduced new insurance offerings with internal customer agents and support teams.

GEICO passed the five million policies-in-force (PIF) mark in 2002, 10 million in 2010, and 17 million in 2019.

In contrast to Buffett’s philosophy of investing in growth when the net present value of customer acquisition is favorable, advisors often reduce marketing investment in client acquisition as the practice matures.

Consider maintaining or increasing your client acquisition while going up-market and adding services to increase annual customer fees.

An ancillary benefit of a client is its lifetime referral value. If each client refers another client like them over their time in your practice, an investment in a new client is even more valuable.

Buffett on acquiring new clients and increasing their lifetime value – “Look not only at the acquisition cost of a client but also the lifetime value of the new client to the practice. Consider increasing marketing budget and scope of services to acquire more clients that are profitable to the practice.”

5. Gain a competitive advantage by mastering the “lollapalooza” effect

Buffett’s associate at Berkshire Hathaway is Charlie Munger, who is credited with coining the term “lollapalooza” effect.

The lollapalooza effect is when different tendencies and mental models combine to act in the same direction. This makes them especially powerful drivers of positive or negative behavior.

The lollapalooza effect in marketing is that advisors look to other advisors to see what is popular in marketing. The same “marketing playbook” is adopted by subsequent advisors.

For example, in the early 2000s, free dinner seminars driven by direct mail invitations to “cold” prospects in an advisor’s area were popular. But they were not adopted in other industries. Content and free report marketing, however, were popular in other service industries, but were widely used only by Ken Fisher Investments until others caught on to that firm’s success.

Munger would tell you to take advantage of the lollapalooza effect in advisor marketing by avoiding the herd of advisors that use the same old tactics and marketing playbook.

Develop your own go-to-market strategy, tactics, and plans that are suitable for you, your target audience, and your practice.

Munger (Buffett) on the lollapalooza effect in marketing – “Be very skeptical of the standard advisor marketing playbook. Instead, develop a marketing playbook that is right for your objectives, your practice, your target market, and your unique advantages”.

There you have the 5 golden rules of marketing by Warren Buffett.

Finally, every advisor uses Buffett’s favorite teaching point – compounding – by leveraging its power to achieve wealth through equity investments over time.

What is a Berkshire Hathaway formula for compounding marketing success?

1. Gain a competitive advantage by mastering the lollapalooza effect
2. Invest in new client acquisition
3. Build a defensible moat around your clients
4. Add a margin of safety to your marketing plan
5. Hold your marketing winners forever

Combine these golden rules in 2023 and beyond to multiply your income!

Bob Hanson is a fractional marketer and author of Marketing Power for Financial Advisors. Get his checklist, Nine Questions Advisors Must Ask Before They Hire a Marketing Agency, Fractional or Full-Time Marketer, click here.

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