The advice industry went to Fat City in 2021

Despite all the political and social turmoil, 2021 turned out to be one of the fatter years for the broad financial advice industry, from large broker-dealers to burgeoning registered investment adviser networks.

Recent indications reveal just how chunky the advice industry became last year and how it's going to continue to put on the pounds in 2022. (I'll dispense with the weight analogy at this point, but there's probably a lot of us out there looking to shed a few post-Jan. 1.)

Despite last year's riot at the U.S. Capitol and a variety of lethal Covid-19 variants, the broad stock market roared, which is always good news for financial advisers and their firms, who charge an annual fee on client assets in the neighborhood of 1%.

The S&P 500 repeatedly hit record highs throughout the year and ultimately posted a total annual return, including dividends, of 28.7% — almost twice its annual median return of 15.4%.

The stock market ending last year with such a flourish means 2022 is already starting with a bang. Many independent broker-dealers and RIAs, for example, bill their clients before the start of the quarter; that means they are currently charging customers fees based on levels of assets at the end of December, when the market was routinely hitting records.

So it's Fat City for the investment advice industry, its executives and roughly 300,000 retail client-facing financial advisers. ("Fat City," by the way, is the title of a 1969 boxing novel that the peerless John Houston would turn into a terrific movie. So again, not a weight joke. Really.)

As InvestmentNews noted last month, financial advisers and their firms would be hard-pressed to have a better year than 2021. The past 12 months saw a number of publicly reporting brokerage firms, including industry bellwethers Merrill Lynch and LPL Financial, post record revenue or profits, all-time highs in assets, or staggering peaks in assets per adviser.

But one key indication, industry bonuses, suggests that 2022 is likely to be another extremely prosperous year for the financial advice industry. That the advice industry and its executives and advisers are prospering during the country's grim times may make some ill at ease, but that won't stop the bounty.

Paul Reilly, chairman and CEO of Raymond James Financial Inc., received a cash bonus of $7.1 million in its fiscal 2021 year ending in September, according to a proxy statement filed last month with the Securities and Exchange Commission. That's a 51% increase compared to the prior year, when Reilly's cash bonus was cut by 20%. His total compensation in fiscal 2021 was $16 million or 44% more than fiscal 2020.

And Raymond James is far from alone. According to Bloomberg, Morgan Stanley averaged about $3 billion of profit annually during chair and CEO James Gorman’s first half-decade running the firm. It made more than $4 billion in last year’s first quarter. 

Raymond James is a bit of an outlier because its fiscal year ends in September, and most other publicly traded brokerage and advisory firms will report executive bonuses in proxy statements this spring.

What's clear is it's a period of abundance right now for the financial advice business, despite the pandemic and political divides.

Enjoy it. But how long until the Fat Lady sings?