As Bono famously sang in U2's early 2000’s album “How to Dismantle an Atomic Bomb,” sometimes you can’t make it on your own. And as shown by a new report, that couldn't be truer when it comes to the wealth management industry.
According to the joint research by Cerulli and Osaic, team-based advisory practices are outperforming solo practices in key areas such as assets under management, service offerings, and productivity.
The study, titled “Top-Performing Teams: Exploring the Benefits and Approaches of Building a Team-Based Advisory Practice,” reveals nearly half of advisors (46 percent) operate in team-based models, which can fall into one of three archetypes: silo practices, ensemble practices, or mega ensembles.
The trend is even more prevalent among larger advisory practices. The research found an overwhelming 94.5 percent of practices managing over $500 million in AUM are team-based, which means lone wolf advisors make up just 5.5 percent of that wealth stratum.
Teams stand to benefit from a streamlined approach to resources and processes, resulting in higher productivity. The research indicates team-based practices boast a median AUM of $100 million per advisor, compared to $72 million for solo advisors. These teams also serve larger clients, with an average client size of $1.6 million versus $1 million for solo practices.
“One of the key benefits of multi-advisor teams is the diversity of complementary skills, experience, and expertise,” Asher Cheses, director at Cerulli Associates, said in a statement. “Combining each team member’s experience allows practices to leverage their individual strengths and provide specialized services, including lending, estate planning, and tax services.”
As the wealth industry shifts away from focusing on investment management to holistic planning, team-based practices are better placed to offer a broader range of services. On average, the research found solo advisors provide 4.5 financial planning services and 2.2 high-net-worth services. In comparison, team-based practices offer 4.7 financial planning services and 2.9 HNW services.
With the expanded menu of service offerings, teams stand to gain in the war for wallet share, as clients are more likely to consolidate assets with advisors who can deliver comprehensive solutions.
“Teams are able to accelerate their growth by better leveraging platform resources such as financial planning, high-net-worth and advisory solutions, as well as business development resources and capital solutions,” said Kristen Kimmell, executive vice president, business development for Osaic.
While teaming may offer a decisive edge, the report is quick to point out several challenges around teaming, including potential issues around culture, leadership, integrating team members, and figuring out the most effective compensation structures. Apart from that, it says collaborative leadership, regular communication, and a shared vision are important for strong teams to thrive.
Ultimately, Cerulli says the shift towards team-based practices is not just about achieving growth, but also about finding a path to efficiency.
“In choosing their team structure, advisors should aim to maximize their drivers of growth while limiting existing areas of inefficiency within their practice,” emphasized Stephen Caruso, senior analyst at Cerulli Associates. “Teaming creates natural opportunities to retool existing processes and establish new frameworks for success.”
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