The advisory business has experienced phenomenal expansion in recent years, a testament to the shift toward a fiduciary standard that's been driven by changing investor preferences. Yet, even firms that are achieving healthy top-line growth often are not attracting as much new business as they could, and should, in light of today's enormous marketplace opportunity. As the long-running bull market shows signs of waning, it's the perfect time for firms to invest in talented people to prepare for and seize the moment.
How can RIAs accurately gauge their business performance and talent strategies? How do their results stack up against others' and where are their hidden risks? The newly release 2019 InvestmentNews Adviser Compensation & Staffing Study, can help firms answer these critical questions. Based on research and a survey of 289 advisor firms, the Study provides insights and benchmarks for firms to gauge how they are performing on a variety of metrics compared to peer firms.
This year's study highlights many reasons for optimism. Advisory firms continue to grow revenue quickly, experience higher profitability and generate remarkable income for owners. However, productivity has been largely flat with minimal increases (or even decreases) in compensation. Among the top findings in 2018:
- Double-digit revenue growth for the second year in a row. On average, firms grew revenue by 11.1% in 2018, more than double the 5% achieved in 2016. Super Ensembles led the way with 14.5% growth. New business growth flowed roughly equally from referrals, new assets from existing clients and new business development efforts. Firms retained all but 2% of their clients, which is crucial to overall revenue growth.
- Relatively flat team productivity – as measured by revenue per staff and revenue per professional – which has persisted since 2014. This could be a positive indicator if a firm is investing in new talent who need time to acclimate and achieve better productivity. However, you might be concerned if you have a mature team that's firing on all cylinders, yet you have not invested in process improvement or automation to help them scale service and support. You will also be concerned if you have not invested in recruitment of younger talent to create operating leverage.
- Increased profitability with a mixed compensation picture. Profitability was up slightly in 2018, which drove a significant jump in compensation for partners, who on average collected $100,000 more than prior year. The study also showed compensation increases for CEOs (9.1%) and Lead Advisors (4.5%) since 2017, consistent with firms directing rewards toward positions that drive revenue. Meanwhile, most other positions experienced very modest comp increases. This might reflect firms hiring and training junior staff, moving people into new roles, or recognizing that certain positions have hit pay ceilings.
Time to Make Talent a Priority
Without having a crystal ball to peer into what the markets will do in 2020, how do firms make the most of the good times while managing against potential future risks? One key strategy is to focus attention on attracting, developing and retaining the right talent – people who can adapt, lead and deliver a differentiating client experience. The talent strategies of firms vary greatly based on their size and stage of evolution, but here are a few action items for attracting and keeping great people:
- Cultivate a Talent Pipeline and Don't Wait Too Long to Hire – Firms often devote time and resources to create client pipelines – why not build a similar pipeline for talent? Too often, recruiting happens only when there's an open position that demands a certain skill set. But, there's an advantage to assembling a dynamic universe of talented prospects before a position opens up. These individuals could be anyone – a teller at the bank, a recent college graduate, a parent involved at school – who demonstrates intelligence and compassion that would suit the relationship-centric world of financial advice. Also, don't make the mistake of waiting too long to hire. According to the study, 76% of advisors say they are near capacity. Delaying hiring until team members are at 100% or 120% of capacity will only create unnecessary stress.
- Emphasize Demonstrated Skills Versus Narrow Experiences – When firms are deciding who to interview for positions, it's easy to fixate on “perfect fit” candidates. However, there is value in being open to those with excellent skills that were forged in other industries. If candidates' core skills are impressive, the firm can complement them with training and development specific to our industry. Look for both culture fits and culture adds.
- Invest in your people like you invest in your clients – Firms sometimes bring great people aboard only to lose them in a year because these individuals feel unsupported in their growth or disconnected from the industry at large. The study found that most firms use ad-hoc mentoring to build next-gen leaders and most also don't have defined career tracks. Rising leaders want to be given a voice in the firm's decisions and need on-point training to build their management skills. One way to engage these emerging leaders is to connect them with other industry professionals who share their passion. There are programs – such as BNY Mellon Pershing's Next Leadership Forum – that pursue this goal by bringing together select professionals from top client firms, and delivering a dynamic, multifaceted leadership program.
There's a lot to celebrate among the findings of the 2019 InvestmentNews Adviser Compensation & Staffing Study.
However, benchmark studies are not designed for you to score how you are performing, but rather to reveal areas in which you should invest. It is important to know your numbers, evaluate your trends, compare yourself to your peers and measure the financial impact of any variance.
As our industry enters a new decade, the challenge will be to sustain growth and profitability – and to ensure that we have the right talent, engaged and productive, and delivering an exceptional experience to the clients who trust us with their investments and many of their biggest life decisions. In the coming months, we'll publish additional articles relating to the study, which will explore various ways for advisory firms to move into the future with confidence.
BNY Mellon's Pershing provides a comprehensive array of practice management resources, programs and personalized support to help advisory firms manage and grow their business. You can engage with our consultants in multiple ways: receive guidance for implementing one of our programs, attend a Pershing event or practice management forum, or take part online through our webcasts. You can learn more at pershing.com.
About the Author
Christina Townsend is a Director and Head of Platform Strategy for Advisor Solutions at BNY Mellon | Pershing. She, and her team, work collaboratively across the enterprise to develop, implement and support the strategy, solutions and platforms available to wealth managers, registered investment advisors, multi-family offices and trust companies. She is also responsible for the relationships with the consultants and vendors who support our target market segments. Christina is a member of the Advisor Solutions Executive Committee.
Prior to her current role, she led the Managed Investments product and transition teams and served on the Managed Investments Executive Committee. She was responsible for the product strategy, roadmap and implementing client's managed account solutions.
Christina joined Pershing in 2000. She started her career in the corporate intern program and then spent a number of years supporting business process improvement efforts for the firm. She managed a team that was responsible for delivering large-scale technology and new client conversion projects.
Christina is the North America Co-Chair of BNY Mellon's Women's Initiative Network and is a member of the BNY Mellon WIN Operating Committee.
Christina earned a Bachelor of Science degree in Economics from Bates College. She completed the Securities Industry Institute® program, sponsored by Securities Industry and Financial Markets Association (SIFMA), at the Wharton School of the University of Pennsylvania.
This content is made possible by BNY Mellon's Pershing; it is not written by and does not necessarily reflect the views of InvestmentNews' editorial staff.