Independent advisers' growth is slowing

Competition for new clients is increasingly fierce, InvestmentNews study finds, and top-performing firms are taking decisive action

Sep 4, 2015 @ 12:01 am

By Liz Skinner

Growth at independent advisory firms is slowing, and advisers may be having a harder time winning new clients.

Over the past five years, the industry has seen average revenue rise. But the median rate at which firms are attracting additional revenue fell to 13.5% last year, compared with 15.5% in 2013, according to the 2015 InvestmentNews Adviser Compensation and Staffing Study to be released Sept. 7.

Growth in assets under management also declined from 15.5% in 2012 to 11.7% last year, the study found.

“Firms striving for 15% growth have been relying on market increases or on existing clients to bring more assets to the firm,” said Brandon Odell, director of business consulting at The Ensemble Practice, a strategic partner on the study. “Market growth has been hiding the priority to focus on your own business development efforts.”

Markets accounted for about 3.9% of new asset growth last year, compared with 8% two years earlier, according to the adviser survey.

Assets from new clients are worth more than additional funds from existing clients or even market gains because that new relationship brings additional referral sources and prospects for even more new business, Mr. Odell said.

“But it's become more competitive to get that new client based on all the efforts that firms are putting into their business development,” he said.

(More: The makeup of independent advisory firms has fundamentally changed)

About half of advisory firms pay a bonus for new business development, the study found. The bonuses amounted to 10% to 30% of new revenue.

Lead adviser salaries in the survey conducted between April and June remained at about the same level as two years ago, at a median of $115,000, while bonuses increased by 28%, to $25,000.

Practicing partner bonuses also were up 23% from two years ago, at $60,000, with salaries nearly flat at $180,000.

Specific sales goals can help motivate advisers: About 57% of firms have sales goals for partners and 49% have them for lead advisers, the study found.

But firms also are shifting their staffing models to take advantage of the potential for each person to be a business developer, not just owners, Mr. Odell said.

The most profitable of the approximately 350 firms in the survey were more likely to have firm-sponsored formal business development training or education for their staff (nearly two-thirds of top performers) than other firms (at about a quarter), the survey found.

“The ability to train business developers and to be systematic in the marketing and lead-generation effort will create sizable competitive advantage,” the study said.

And it seems to be paying off.

The top-performing advisory firm giants — those that have more than $10 million in revenue and are the most profitable — generate more than 71% of new assets from firm business development, the study found. The rest of the $10 million-plus firms garner 44% of new assets from business development.

For more information on the full study and to purchase a copy, click here.

Median revenue growth rate, 2010-2014
Source: InvestmentNews Data
Median adviser compensation, 2013 vs. 2015
Source: InvestmentNews Data

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