The secret to a more productive advisory firm

The following is an excerpt from the new white paper, “Enhancing Productivity through Support Advisor Empowerment.” To download the full paper from Cadaret Grant, click here. While markets continue to provide a largely supportive backdrop for the financial advice business, competition and technology—as well as changes in clients' investment preferences and desire for transparency—are putting pressure on margins. Fortunately, with greater advisor revenue now coming from fee-based accounts, market appreciation in recent years has produced gains in advisor revenue that have often offset or obscured margin compression. But since these favorable market conditions may not continue, and because margin pressure is likely to increase, it makes sense for thoughtful advisors to put in place programs and procedures that will lead to better performance. One way even small advisory practices can increase their profitability and efficiency is to follow the lead of the nation's most profitable and largest advisory firms. Specifically, this whitepaper will focus on the benefits of hiring or enhancing the job functions of a “non- rainmaker” administrative person whose superior skills free advisors to focus on attracting and retaining business. Many advisors already employ such a person, and this whitepaper will suggest that the person's job description be upgraded and the person possibly provided with additional training to make them more productive and to create a true career path that will encourage long-term commitment. While seemingly an increase in cost without an immediate increase in revenue, hiring and/or empowering support advisors or assistants has been a proven way to enhance productivity, bring in more business and, ultimately, profitability.

The problem? Capacity.

Nearly 90% of firms participating in InvestmentNews' latest Compensation and Staffing Study reported that they are at or near capacity—and may not be able to add new clients as a result.

The majority of firms are approaching capacity

This has led to a slowdown in growth across the industry: In 2016, for example, median revenue at independent firms grew at a rate of only 5%, down from 8% in 2015, 14% in 2014 and 16% in 2013. The top-performing* firms in the industry, however, are often outperforming their peers because they are investing in their team structures and personnel before they experience such constraints. This allows top performers to always position themselves for growth and the addition of new clients—and also assures that they will never deliver a lower level of service to their existing clients at the expense of new ones. In addition, these top firms are taking a different approach to the types of individuals that they are adding to their organizations to improve productivity and growth. Instead of adding experienced advisors or “rainmakers,” top firms are adding so-called “nonprofessional staff”— para-planners, client service associates or administrative associates—at a lower cost. While not producers, these people were sought for their superior administrative or support skills so that current team producers and business developers, and especially senior advisors, could become more productive and effective. The efforts work: As an example, by hiring support personnel, lead advisors at the most productive and profitable advisory firms spend 75% of their time interacting with clients and prospects, compared to 52% for the average firm. The revenue per professional in the leading firms is also $150,000 greater than at the average firm—illustrating the clear return top performers are generating on the investments in support roles.