Financial advisory firms are missing their growth target for assets under management, revenue

After falling short of their goals, advisers are trying to figure out how to get back on track

Oct 23, 2016 @ 12:01 am

By Liz Skinner

It's time for financial advisers to tune up their business development engines. Just over half of all advisory firms missed their growth targets last year when flat U.S. stock markets failed to rev up their assets under management.

Nor can advisers point to a single marketing activity that the bulk of firms have found to be “extremely successful,” according to the 2016 InvestmentNews Financial Performance Study, done in conjunction with The Ensemble Practice and sponsored by Pershing Advisor Solutions.

(More: Interactive graphics detail how the industry performed)

So each firm will need to craft a business development strategy that keeps advisers actively networking in their communities and establishes the reputation of the firm and its people. They're also going to need to start measuring their triumphs and failures at turning prospects into clients. Today 62% of firms are not even tracking their leads, the report found.

“Advisers have become so sophisticated in the way that they service clients and in the way they manage their firms, yet not so much in how to grow,” said Philip Palaveev, CEO of The Ensemble Practice.

Growth has been disappointing for firms both in terms of assets under management and revenue.

Financial advice firms grew AUM about 5.7%last year, the InvestmentNews report found. That lags the 11.71% AUM growth in 2014 and the 21.7% increase in 2013, years when the Standard & Poor's 500 stock index provided double-digit returns for investors. Last year, the S&P 500 advanced a meager 1.4%.


The industry grew revenue by an average 8.2% last year, below the average target for revenue expansion of 12.7%, according to the study of 222 registered investment advisers, independent broker-dealers, and hybrid firms that use both business models. The participants represented a median $215 million of AUM, with some reporting more than $1 billion.

About 54% of advisers missed the revenue growth target they had set for 2015.

AUM and revenue growth by firm channel, 2015

WMS Partners, a $3.2 billion wealth management firm with three founders and 14 partners, met its growth target last year after buckling down three years ago. The 23-year-old firm hired a business development director and focused on external branding, said Timothy Chase, managing partner at the firm.

“We realized that just having our founders in charge of generating new business wasn't a sustainable situation for us,” he said. “We've tried to encourage business development skills in everyone here, and make sure they get the coaching and training they need to do it.”

About 55% of advisory firms plan to emphasize adviser business development to spur revenue growth going forward, the InvestmentNews report found. About 65% plan to boost revenue by attracting more client referrals.

The typical advisory firm relies mostly on referrals for new business. That's where the Botsford Financial Group, with $871 million in AUM, gets most of its top clients.

“Our best new clients come from our existing clients,” said Kay Lynn Mayhue, president of Botsford Financial. “So our focus is on service to our existing clients.”

Advisory firms are generally challenged to find effective marketing strategies.

Top five most successful marketing activities
Top Performers
Success Ranking Method Percentage of firms using
1 Community involvement 64%
2 Hosting networking events 23%
3 Sponsoring community events 42%
4 Volunteering on non-profit boards 55%
5 Actively capturing leads on firm's website 28%
All Others
Success Ranking Method Percentage of firms using
1 Hosting networking events 34%
2 Community involvement 66%
3 General public relations 29%
4 Radio/television shows (either as a host or guest) 11%
5 Volunteering on non-profit boards 58%

About 65% of firms are active in their communities and 57% have members who volunteer on nonprofit boards, two methods that a third of advisers consider to be very or extremely successful marketing efforts, the report said. About one-third of the 31% of advisers who host networking events said that strategy worked well for their firm.

Only 10% of advisers host or serve as guests on radio or television shows, but 35% of those advisers found it to be an extremely or very successful marketing strategy, the report found.

Botsford Financial receives many leads from radio shows where founder Erin Botsford discusses her book about the risks of retirement. However, many of the prospects are not really a fit for the firm, Ms. Mayhue said.

Not including those leads, the firm over the past 18 months has closed about four out of five prospective clients, she said.

The average advisory firm turns one of every five leads into a client, according to the InvestmentNews report.

Like about two-thirds of advisers, WMS Partners hasn't been particularly dedicated to tracking its leads, Mr. Chase said. But the firm recently switched to a new client relationship management system that the firm's leaders hope will help it keep better tabs on the prospect-through-client pathway.

“We've been really spoiled by clients seeking us out so we never really developed that sort of muscle memory to keep good track of leads,” Mr. Chase said.


An examination of where advisory firms' new clients are coming from suggests another industry obstacle is developing: increased competition for clients.

Most high-net-worth clients already have a financial adviser and not many are moving, as evidenced by the 98% client retention rate of advisers, Mr. Palaveev said. Additionally, 75% of the growth in assets last year came from previously self-directed investors, the survey found.

That pool of potential clients also is drying up as more of these first-time clients sign on with an adviser, he said.

“Advisers are starting to exhaust the supply of self-directed investors and are having to compete with other advisers more often,” Mr. Palaveev said. “That's only going to increase and competition is going to get fiercer as consumers have more experience with advisers and their expectations increase.”

Alex Murguia, managing principal of McLean Asset Management, agrees that inevitably advisers will be competing more directly with each other at the local level and nationally.

Digital marketing will become crucial to advisers as they try to attract clients in the future, he said.

“If an adviser can digitally nurture a prospect to read white papers, participate in educational webinars, etc., then that adviser can build trust with them and potentially attract that prospect away from another adviser who may be next door or across the country,” Mr. Murguia said.


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