Study identifies profitability, productivity, and compensation trends of most successful advisory firms
Today's independent advisory firms are no longer solely driven by the talent of their founders and investment teams. Instead, they are growing enterprises focused on the talents of employees across multiple roles and disciplines, according to the 2015 InvestmentNews Compensation & Staffing Study, sponsored by Pershing. The study found that firms achieving the highest levels of performance are putting the attraction of top talent, motivation of employees and implementation of well-thought out plans near the top of their list of priorities.
According to the report, industry growth is changing the nature of firms. Advisor ownership used to define independence; however, today employee advisors now outnumber owner-advisors. This change amplifies the importance of developing career tracks, a workplace culture, nurturing talent and determining competitive positioning. As much as growth has created opportunity and brought a wave of hires, it does not seem to have affected compensation for most positions in the last two years. Salaries for employee advisors and other key positions remain virtually unchanged. The cumulative effect of growth has doubled the size of the typical firm in the industry over the last five years. The year 2014 brought 13.5% growth in revenues.
"Recruiting top talent and delivering exceptional services to your client is critical to success in today's advisory landscape," says Ben Harrison, managing director and head of business development and relationship management at Pershing Advisor Solutions. "Whether your firm is a super ensemble or a small RIA, implementing a business management strategy is fundamental. We are personally invested in helping our clients succeed and have uncovered key insights in this study to help them better engage investors, attract top talent and run their business more effectively."
The report identified the following trends as drivers of the business management strategies of the most successful firms:
- Growth and Prosperity: Firms of different sizes significantly differ in their approach to finding new clients. The largest firms turn to branding and marketing, while smaller firms rely on referrals and networking.
- Employee Advisors Outnumber Owners: Owners are no longer the only advisors that manage client relationships. Super ensembles have been building their employee teams for many years, and smaller ensembles and enterprise ensembles are now also following suit.
- Size Becoming a Decisive Advantage: Super ensembles and large firms hold the advantage in their ability to attract top talent and the largest client relationships. Because of their size, they have a more prominent presence in the marketplace and are typically located in the largest markets where there is also a proliferation of wealthy potential clients.
- Salaries Remain Unchanged: While there has been a new wave of advisory hires, it has not translated into salary growth. Instead, the growth in compensation has been in the form of incentives rather than salaries.
- Building a Growth Engine: Many advisors are focusing on the clients who will offer the most value and pay for the firm's service offering.