Adviser 2.0: Managing growth

The growth you have is the fortune of your condition. We look upon an industry that is thriving and maturing with the successes of continued growth. The past few years have provided double-digit growth to the average advisory firm and granted opportunities to expand services and structures. This has allowed firms to increase capacity through hiring, improve the productivity and profitability of the business, reward the owners, and possibly venture into the exciting but intimidating world of mergers and acquisitions. All of this contributes to an advancing industry that is now represented by Adviser 2.0, which captures the transformation of the average firm from a practice to a sophisticated business. Managing the modern business, we need to plan for the future we are less certain about. Good management measures the strengths and deficiencies that contribute to a firm's success. In 2013, the S&P 500 rose nearly 30%. Undoubtedly, this will perpetuate growth in revenue, but the past defines the resources we have today and not the plan for the future. Our current situation is due to the decisions the firm has made and implemented. The measures of our success are easily veiled in rising markets.

Never confuse movement with action.Ernest Hemingway

When we look at the data from the 2013 InvestmentNews/Moss Adams Adviser Compensation & Staffing Study, the average adviser grew assets under management by 15%. As we dig deeper and evaluate the drivers of growth we see that advisers successfully developed business from new and existing clients to add 13% asset growth, but firms also lost 6% of assets to departing clients and existing client distributions. The net growth in assets due to controlled advisory functions was 7%. Market performance of 8% accounted for the rest of asset increases. In this context, managing growth becomes important for all firms, even those with capacity constraints. By tracking growth contribution we more clearly see the impact of marketing and adviser productivity. We also see the average 6% loss in assets that happens every year. A firm without a focus to grow and regenerate lost assets will not have capacity constraints for long as the assets roll away each year. Understanding your ability to manage growth as a firm is important before planning for the future. InvestmentNews' series of benchmarking studies provide the balanced ruler to compare your metrics within the industry. As owners and managers, your ability to harness the direction of market movements can only be measured against other firms who have made decisions in the same environment. Benchmarking your decisions is a strengthening exercise for the management and direction of your firm. Looking toward the future, advisory firms have the opportunity to manage the growth they've found to establish a vision or roadmap for how to use it. Last year we discussed the benefits of benchmarking as part of your firm planning. We also coordinated the analysis of the 2013 InvestmentNews/Moss Adams Adviser Compensation & Staffing Study to meet the needs of the modern advisory firm, whether the firm is a large industry leader, a growing multi-professional business or a focused solo practice. The delineation of these industry categories can align your firm resources and objectives with advisories in a similar position:

• Super Ensembles: We recognize the complex and sophisticated management environment in the largest firms in the industry and the need for information on strategic initiatives, corporate governance, service structures, specializations, financing and capital management. We look to examine mergers and acquisitions, business development strategies and equity management, along many other topics that keep managing partners awake at night.
• Ensembles: Multi-professional firms are the core of the industry and the root of the Adviser 2.0 business transformation. We look to continue to help them grow faster, sharpen their strategic objectives, establish sound corporate governance and executive functions, monitor profitability margins as they invest and expand their businesses, and preserve the growing value of the firm.
• Solo Practices: The solo practice will continue to be an integral part of the industry. Personal practice owners drive the entrepreneurial spirit of the advisory firm. Many solo firms sit at the intersection of capacity management and growth. We look to explore the strategies of these firms to find time-income balance, express the need for continued business development and examine the external opportunities for growth acquisition or exit.

The 2014 InvestmentNews Financial Performance Study will continue to advance the evolution of management decision-making in the modern advisory business. Within the industry segments noted above there are unique opportunities that will be evaluated specific to the challenges present: – Are we maximizing the value of the firm? – How do we value and finance equity sales? – Are we aligning our strategy and initiatives? – How does our business development growth compare? – Are we managing productivity and overhead efficiently? – How competitive are our services and prices? Whether your ambitions aim to grow between solo, ensemble, and super ensemble, or improve management and efficiency of your current structure, in the 2014 InvestmentNews Financial Performance Study our goal is to chart the advancing path of Adviser 2.0. On behalf of InvestmentNews and The Ensemble Practice, we invite you to visit InvestmentNews.com/fp2014 and participate in the 2014 InvestmentNews Financial Performance Study. Brandon Odell is director of business consulting with The Ensemble Practice LLC, a business management consulting firm that defines the evolution of growing a multiprofessional advisory practice. The Ensemble Practice is a strategic partner to InvestmentNews Research and the 2014 Financial Performance Study.