Independent advisory firms just turned in one of the most profitable years in a decade – and, according to new industry research, they may be quietly setting themselves up for a growth problem down the road.
The Ensemble Practice's 2026 True Ensemble Growth and Profitability study, based on 2025 calendar-year financial data submitted by 173 advisory firms, found that the average firm posted a 38.6% operating profit margin last year. At the same time, true organic growth – new client relationships net of market appreciation – came in at just 3.7%, near the lowest level the firm has recorded in a decade of benchmarking.
"On average, we saw an average operating profit margin of 38.6%. So very healthy profit margins. I don't know many firms that would turn down that opportunity," said Catherine Williams, who recently joined the Ensemble Practice as chief operating officer, in an interview with InvestmentNews. "But when we looked correspondingly at true organic growth ... we absolutely saw a difference in that new client growth."
The pattern isn't new, Williams said, but it has hardened. In 2015, the average firm in the study posted a 24% profit margin; by 2025 that had climbed to 38.6%, while new-client growth over the same period trended in the opposite direction. Ensemble Practice's data shows an R-squared of 47.7% between a firm's profitability in one year and its organic growth the next – a relationship Williams described as a "scissoring" effect that has now shown up consistently across multiple years of the study.
"If you consider profitability to be the intersection of operational efficiency and growth, and you're only paying attention to one of those two things, it could become a problem in the future," Williams said. "When we see that divergence happening, that's what really caused us to sort of sit up and take notice."
The report breaks results down by firm size – under $500 million, $500 million to $1 billion, $1 billion to $3 billion, and so-called super-ensembles above $3 billion – as well as by pace of growth, to identify where complacency shows up most.
Williams pointed to three recurring patterns behind the divergence. The first is underinvestment: highly profitable firms, she said, tend not to reinvest profits into business development or into building advisors' sales skills. Pointing to other industry studies, she said marketing marketing spend by and large is sitting at just 3% to 4% of revenue on average – higher than the 2.3% Ensemble Practice's own survey found independent advisory firms setting aside for marketing staff and spend combined.
The second is compensation design, in the sense that many firms still don't incentivize advisors financially for winning new business. While many independent firms may see that sales-aligned structure as a slippery slope toward conflicts in advice and relationships, Williams insists that isn't true.
"It is absolutely okay to reward advisors for bringing in new business," she said. "It does not kill your culture."
The third factor is capacity. Among the independent advisors Ensemble Practice polled, those at highly profitable firms frequently say they don't have the bandwidth to prospect because they're stretched thin serving existing clients. That's all well and good, but Williams said it also points to a fixation on harvesting without leaving time for much-needed planting. To help head off the issue, she argued firms need to build their teams, technology and processes for the size they aspire toward, not the size they're at today.
Beyond that, Williams said many firms are setting themselves up for failure by not having a rigorous, consistent way to track their own growth. She recounted a conversation with a $3 billion firm whose leadership admitted, "we don't know how we got here."
Ensemble Practice's methodology draws a narrow definition of true organic growth – new client relationships, net of market appreciation – deliberately excluding gains from existing-client contributions, M&A activity and market performance.
"The ability, effort and the impact of sourcing new client assets, and not just relying on markets and existing clients, we think is a more accurate reflection of how the business is truly operating and thriving," Williams said.
That distinction matters most, she added, when markets are strong or a firm has recently closed an acquisition – conditions that can mask a lack of underlying new-client growth.
"You can sort of hide behind the numbers a little bit, especially when the market's great," Williams said. "But if you're doing those things in absence of pursuing organic growth ... your ability to kind of hide behind that goes away" once markets or deal flow cool off.
Williams said the stakes go beyond bragging rights at industry benchmarking events. Firms eyeing an internal succession or an outside capital partner will eventually need a clear, defensible account of where their growth actually comes from.
"You can't hide behind this stuff," she said. "You need to be very clear, very candid, and show that these are all the ways the business is thriving."
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