Are We Measuring What Actually Predicts Organic Growth?
Just about everyone in wealth management is talking about the importance of organic growth. C-suite executives are prioritizing it. PE sponsors are pricing for it. And for good reason: each percentage point of firm-wide organic growth can generate up to + 1x in multiple expansion, hundreds of millions in enterprise value for larger RIAs, billions for larger broker-dealers.
The uncomfortable question is: are we actually measuring what predicts organic growth?
Industry average organic growth is less than 2%, and 91% of RIAs show little to negative growth. For years, market appreciation has masked this problem. AUM and revenue grew. Firms were profitable. As Jim Dickson, CEO of Elevation Point, put it: “The last 12 years, we’ve been in a bull market, and it’s put a lot of makeup on the business. When we dig into our diligence, very often, if you back out the market growth, you actually see these businesses shrinking.” Prosperous stagnation: profitable on the surface, but the underlying growth engine isn’t running.
The Measurement Gap. The key metrics we rely on to evaluate client relationships and advisor performance, the very things that drive organic growth, haven’t proven predictive. They may even be misleading. Consider the evidence:
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Retention. High retention rates are often cited as evidence of the quality of client relationships and advisor performance. Yet retention alone has not been a reliable predictor of organic growth. Nearly 50% of clients (and 67% of wealthy clients) report having more than one advisor, diluting wallet share. Add to that, 70% of surviving spouses move their assets, and 81% of high-net-worth heirs say they’ll leave their parents’ advisor. Retention rates can mask embedded attrition risk and an experience that isn’t delivering the value that drives consolidation, advocacy, and next-gen retention.
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Net Promoter Score®. NPS®is considered the gold standard for predicting advocacy. Our industry-average NPS hovers around 50, suggesting strong advocacy intent. But this hasn’t translated into commensurate organic growth. The problem is, NPS is a narrow metric that doesn’t accurately measure intensity. Is advocacy a casual mention or enthusiastic evangelism? This discrepancy is highlighted by data showing that only 11% of clients report receiving a high-value experience per J.D. Power, and as a consequence, advocate enthusiastically.
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Client satisfaction. Finally, high client satisfaction scores are also cited as evidence of strong client relationships. Yet satisfaction is inherently flawed because it is a function of expectations. Lower expectations can drive higher satisfaction. When expectations rise, satisfaction can drop.
None of these metrics predict whether clients will stay, consolidate assets, or actually refer. And if you can’t measure what drives those behaviors, you can’t manage them.
A More Predictive Alternative. What’s needed is a metric that measures the actual quality of client relationships. Not a snapshot of sentiment, but a measure of value creation. That’s why we developed the Relationship Quality Index® (RQI®). It’s a composite of five attributes: trust, loyalty, perceived value, overall experience, and advocacy. Together, they provide a more granular understanding of the underlying relationship. RQI measures not just advocacy, but the quality and value of the experience being advocated for.
When clients fully realize these attributes, they behave differently. They stay. They consolidate. They enthusiastically refer. RQI measures the attributes that drive those behaviors and predict organic growth, quality of cash flow, and enterprise value. RQI reframes how firms can assess individual advisor performance and firm valuation.
Connecting Advisor Performance to Enterprise Value. RQI connects the entire value chain, from advisor performance and quality of client relationships to enterprise value. Its applications include:
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Client to Advisor. RQI provides advisors with objective insight and strategic direction on the quality of their client relationships, including attrition risk, organic growth trajectory, and practice valuation.
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Enterprise.Roll up advisor-level scores and RQI reveals top performers, performance gaps, and embedded risk. It is a measure of value creation and organizational vitality, and it is predictive of the quality of earnings and enterprise value.
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Advisor to Enterprise. The high-quality cash flow created through strong client-to-advisor relationships only accrues to the enterprise if the advisor’s relationship with the firm is durable. RQI provides insight into retention dynamics and attrition risk of a firm’s advisors, validating the sustainability of cash flow and the multiples it supports.
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PE Sponsors. RQI provides a more predictive lens for M&A due diligence, validating the quality of earnings and organic growth trajectory pre-acquisition. Post-acquisition, RQI serves as a primary metric for monitoring growth trajectory and identifying multiple expansion opportunities across portfolio firms.
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Enterprise Strategic Investments.RQI can also serve as a leading indicator of the impact that investments in advisor development, client-facing tools, and platforms are having on the quality of client relationships.
Organic growth is the industry’s top priority, and understandably so. It is the key driver of enterprise multiples. Yet the metrics we’ve traditionally relied on haven’t proven predictive. That’s not a gap. It’s a blind spot. One with hundreds of millions of dollars, or more, at stake.
RQI addresses that blind spot by connecting the entire value chain. At the advisor level, it measures the value creation embedded in client relationships. That value creation drives quality of cash flow and organic growth. The durability of the advisor-enterprise relationship determines whether that cash flow accrues to the firm, driving enterprise value. And because RQI is more predictive of organic growth, it serves as a leading indicator of multiple expansion.
Firms finally have a single metric that draws a direct line from how their advisors engage clients to the multiples they’ll command at exit.