Advisory firms flying high

Call it a harbinger of the new normal. Financial advisory firms continued to make substantial gains in revenue and profitability in 2011, even as they took a wait-and-see stance on hiring, according to InvestmentNews' 2011 Industry Attitudes survey. “People got blindsided in 2008,” said Stuart J. Silverman, chief executive of Fusion Advisor Network, which has 125 advisory firm members that manage a total of $8.5 billion in client assets. “They had to tighten up and get more efficient. Now they are ready for a more volatile economy.” If 2010 was a rebound year for financial advisers, 2011 has demonstrated that advisers have learned to operate efficiently, increasing revenue, profits and clients but adding few new personnel.

BROAD REPRESENTATION

The industry snapshot represents a cross section of financial professionals. A total of 737 people participated in the survey, which was conducted in September. Around 43% identified themselves as registered investment advisers, 42.8% said they are registered representatives or securities brokers, and 22.7% said they are insurance agents or brokers. Nearly a third, 30.8%, identified themselves as financial planners. The great majority manage at least $10 million in assets. By most measures, it was a good year, with 76.2% saying they added clients, versus 6.3% who said they lost clients and 17.5% who maintained a steady number. Of those who added clients, the majority, 82.9%, said they added between one and 25 clients. Another 11.7% gained between 26 and 50 clients, with 2.7% adding 51 to 75. A slim 0.8% of those surveyed added between 76 and 100 clients, while 2.1% took on more than 100. Advisers who lost clients reported similar numbers, with 87.5% putting the number of lost clients at one to 25, and 5% saying they lost between 26 and 50. The tricky markets of 2011 has helped persuade some clients to seek professional help in managing their investments, which was an important driver of growth, advisers said. “The need for sound advice and encouragement with respect to the fundamentals of the markets has once again become a key component to those who are seeking wealth preservation and retirement income,” said Brian Church, divisional vice president of Axa Advisors LLC. That will probably hold true even if the markets settle down next year, as they frequently do in an election year, said Mr. Church, who believes that the adviser's role “has become more important to the public than ever.” “I think this much volatility in the markets drives more business to [fiduciary investment advisers] because more people are more willing to look for outside help,” said Terry Siman, a managing director at United Capital Financial Partners Inc., a registered investment adviser with about $15 billion in assets under advisement. In strong markets, more people take a do-it-yourself approach, he said, but the past couple of years have seen a healthy increase in business.

REVENUE GAINS

Most firms saw revenue gains in 2011. Of those who responded to the survey, 68.9% reported a gain in revenue, and only 13.3% reported a decline. Just over half the firms reporting higher revenue, 52.8%, said the increase was a healthy 10% to 20%, while another 19.4% put the growth between 21% and 50%, and 22.1% said it was 9% or less. But hiring didn't reflect the growing revenue, as firms continued to do more with less. Only 21.4% said they added staff in the past year, while 9.7% said they decreased staff. The majority of firms, 68.9%, kept head count steady, apparently hesitant to make a commitment to new hires even though many of them added clients and revenue. Mark Tibergien, managing director and chief executive of Pershing Advisor Solutions LLC, a unit of The Bank of New York Mellon Corp., believes that some firms mistakenly hold off on hiring because they have the unrealistic expectation that they will find an adviser with extensive experience who will bring a substantial roster of clients with them. Sometimes they wait too long, he said.

MISPLACED EFFORT

At a Chicago workshop on compensation and staffing conducted by IN Adviser Solutions in early October, Mr. Tibergien told the story of one adviser he knows who spent five years trying to recruit an experienced financial planner with an established book of business. “That was five years wasted that they could have developed someone with two years' experience and no clients,” he said. “A lot of smaller advisers will have to think about this.” On the positive side, firms believe they are in a good position to weather whatever the markets are likely to bring, Mr. Silverman said. “I don't think you will see them run for the hills” if the economy continues to be weak, he said. Thomas A. Muldowney, chairman of Savant Capital Management Inc., which manages $2 billion, has added staff this year because he sees continuing demand for investment advice. “There was a time when even if the financial markets were inefficient, [investors] could make money because of the return,” he said. Now that it is increasingly difficult to rely on consistently rising markets, clients are looking for professionals to generate investment return, “and we have an active program to find these people,” he said. Email Lavonne Kuykendall at lkuykendall@investmentnews.com