Survey says everyone in the wealth management industry is hiring just to keep up with the bull market, but truly new money just isn’t scaling with costs.
Revenue is up 12% for the advisors BNY Mellon Pershing surveyed this spring and that’s a great thing, until you reflect on how AUM is up 19%.
Fees per dollar of managed assets dropped 6% to make that math happen. That’s fee compression. Not hypothetical or abstract.
And that’s just revenue. Half of all firms are staffing up, which costs money. Since payroll is scaling linearly with assets, all these firms are doing is expanding for its own sake.
They’re getting bigger. They’re not getting richer. And with AUM fees dipping and Pershing describing revenue per advisor as “stagnant” since 2015, growth can actually become a net drag.
Reading between the lines, that’s a problem for small shops. Pershing notes that “super firms” generating more than $10 million a year — at least a few dozen advisors running maybe $40 million apiece — accounted for the lion’s share of all industry growth. They grew their revenue 13% last year.
Solo practitioners moved up 6% on average. That’s below market appreciation so it’s likely that any net account flows were negative. And that’s just the average.
This math is okay if you’re already in semi-retirement and looking to sunset your practice over the next decade or so. But if you’re younger and more ambitious, I hope you’re still growing ahead of the industry trend.
Growth at a loss works when you have a strategic goal, a timeline and measurable milestones to hit along the way to prove that everything is still on track. You’re investing resources in a tangible future then, not simply swimming with the current.
Of course you have all that in place. If you don’t, there’s no shame in finding the partners who can help — all those “super firms” started when two solo advisors put their heads together and realized they were more than the sum of their parts.
One way or another, the future is about teamwork and niche players coming together. The alternative is at best a slow drift to oblivion.
Consider: People in the industry who are discounting in order to capture or retain clients may or may not be growing fast enough to cover the gap, but either way it sets the bar lower for everyone else.
It doesn't have to be that way. While robots don't help, we know a lot of clients see value in full-service advisor relationships and will happily pay whatever rate you set as long as you keep communicating that value.
However, when they perceive everything else as being equal — same investment performance, same VIP treatment — paying 0.95% instead of 1% is a no-brain decision.
Your job is to avoid being equal. Be the best in the world at doing what you do. Know your clients better than any possible competitor. Anticipate their needs and their fickle moments.
And then flip that process. Come up with a plan to chase other advisors’ clients more effectively. That’s real “business development.” Nurture each prospect that can generate better ROI for your firm than your current ones give you now.
As you staff up, your hires should be capturing more efficient businesses, more revenue per advisor. It’s not about simply growing horizontally to get bigger and distribute more work across more people.
Pershing gives us the writing on the wall. But we don’t have to accept it. People are winning out there. I want to make sure you’re in that crowd.
