Last year, financial advisory firms performed well overall, but larger firms and top solo firms outshined the rest, InvestmentNews’ “2014 Financial Performance of Advisory Firms” study reveals. It seems that it’s best to be either a top solo firm or a high-performing super ensemble practice.
The slide presentation accompanied by a webcast from industry experts highlights that while most growth came from market and contributions, larger firms are twice as productive. Other highlights from the study:
- Solo firms with average revenue of $305,000 saw revenue grow by 15.4% in 2013, while super ensembles averaging almost $1.5m grew by 18.6%.
- Revenue per advisor for top solo firms was more than twice that of all others.
- Top priorities are revenue growth (32%), operational efficiency (25%), revenue quality (15%) and increasing productivity (11%).
- Top marketing strategies are dominated by community involvement, followed by websites and PR.
- Overhead as a percentage of revenue for smaller firms was 48%, while super ensembles spent just 30%.
There is a virtuous circle for larger firms that includes more visibility and referrals, followed by better clients, higher profitability and better talent. Investment in people is still low, and there seems to be a lot of buyers and few sellers.
The results are even more telling for plan advisors who, more than wealth managers, need to build a strong team and employ more sophisticated marketing strategies for corporate clients, where sales cycles tend to be longer. As with DC service providers, it seems that plan advisory firms in 401(k) Heaven are either big and growing or are focusing on being hyper-efficient small shops. Those in between will get squeezed, especially with today’s dramatic fee deflation, which will only keep getting worse. Sound like a ripe time for consolidation?
