Financial advisory, for all of its ups and downs, fits and starts, is a remarkable — and remarkably resilient — industry. And there is no better time than now to be in it. In the face of perennial issues such as the constant drumbeat
of regulation, internecine disagreements over what's best for the industry (and clients) and debate over when, or whether, the business will ever mature, the advice business has grown rapidly over the last 10 years. In fact, according to the recently released InvestmentNews/Moss Adams Adviser Compensation and Staffing Study, revenue at financial advisory practices, on average, has increased nearly six times since 2002. In the very first Moss Adams study, revenue for the average participating firm was $600,000. Today, it's $3.5 million.
That kind of growth — an annualized rate of 19.3% for the last 10 years — easily outpaced the 4.6% growth in the S&P 500 over that same period.
'Critical mass'
While that kind of growth is not likely to continue for long, the last 10 years have put the industry in a solid position for long-term success. In senior columnist Bruce Kelly's story about this year's compensation and staffing study, “Financial advice firms soar,” Mark Tibergien said advisory firms are reaching the “critical mass” that lays the groundwork for more growth.
“The good news is that there is a bright future for many advisers,” the chief executive of Pershing Advisor Solutions LLC told InvestmentNews. “There are fewer advisers today than 10 years ago, but more clients. What an amazing business to be in.”
One of the authors of the study, Brandon Odell, director of business consulting at The Ensemble Practice LLC, said the advice industry has moved well beyond the Wild West days of 10 years ago when “advisers dotted the landscape, and people wanted to have their own little fiefdom and be geographically centered.”
So the heavy lifting has been done.
But that's no reason for complacency or to think that all the challenges have been met and it'll be smooth sailing from here on out.
Indeed, as the scuffle over fee-only versus commission, the debate around the fiduciary standard and the growth of online advice illustrate, everyone in the financial advice industry — from CEOs to one-person shops — still needs to work toward tackling the difficult issues and be fully engaged in shaping the business for continued growth.
Key lessons
And in the area of staffing and compensation, this year's InvestmentNews/Moss Adams report teased out key lessons from top-performing firms that can help business leaders build lasting foundations to help ensure a smooth transition to the next generation of advisers.
Paramount among them is the need for firms, both large and small, to use the skills and abilities of all employees to tap into hidden strengths and pockets of expertise.
But to do that, firms need to recruit top talent. That, in turn, means taking a hard look at incentives and who in the firm gets them. Some industry observers say all employees, regardless of title or role, should be offered a financial incentive.
When bringing in a new employee, one key to ensuring their success and retaining them is quickly integrating them into the firm and making sure the employee has a clear, long-term career path.
It may sound obvious, but better talent leads to larger firm size, which leads to better visibility to further fuel growth. That, in turn, attracts more high-quality clients, and leads to better profitability.
And so it goes.
