There is no greater success for a wealth manager than rapidly reeling in new high-net-worth clients and winning a bigger share of those wealthy client’s wallets. But managing booming growth in a wealth management practice, or any business, is tough. There are numerous operational, staffing and service hurdles to overcome in order to keep it running smoothly and efficiently as you expand – and to keep those clients coming back.
Recently, SEI, an outsourcing provider for financial advisors and investment managers, held a forum called the SEI Advisor Network’s Advisor Growth Forum to help advisors identify and resolve some of the biggest challenges that rapidly growing advisory practices face.
"There comes a critical point in the evolution of your firm when you realize your current structure or model just won't accommodate growth," said Paul Salisbury, an attendee from Insight Group in Salt Lake City, Utah. "The more we grew, the exponentially more difficult things like maintaining client service, overseeing budgets and running day-to-day operations became to manage."
Although attendees were from very different kinds of practices, they found a lot of common ground, according to a report from SEI. Some of the specific issues the firms found they needed to focus on included:
1. Standardization of processes -- filling in gaps in service and efficiency;
2. Integration of systems – financial planning, aggregation and custody;
3. Expansion of business management – finding, and being able to afford, quality staff for operations and general management positions;
4. Lifestyle maintenance – Not sacrificing time, income or quality of life for growth;
5. Analyzing cost of client relationships – Figuring out who gets too little service and who gets too much;
6. Understanding existing technologies – Taking full advantage of in-house software and hardware to serve clients;
7. Focused Marketing – Traditional public relations campaigns to complement referrals;
8. Participating firms, all of which had more than $200 million in firm assets, attended the forum because of their expressed interest in organizational, platform and structural issues associated with growth.
The advisors' concerns are very much in line with those that Moss Adams found in their 2006 Moss Adams Financial Performance Study of Advisory Firms, sponsored by SEI. That study reported that firms are struggling to increase profits despite rising revenues throughout the industry.
Revenue per owner increased nearly 75 percent from 2000 to 2005, but income per owner only eked out an eight percent gain during that same time period. Firms’ direct expenses (compensation to professionals), incidentally, increased by almost 94 percent over the period, while productivity in terms of revenue per advisor actually decreased by seven percent.
That study also indicated that the most successful owners spend the least amount of time on operations, with the top quartile solo firms (single practitioner firms with the highest level of assets under management per active client) dedicating only 10 percent versus 16 percent for other participants. In addition, the principals of what Moss Adams refers to as "market dominators" (multi-professional firms with more than $5 million in revenue) spent less time on portfolio management, roughly 13 percent, while smaller producers dedicated as much as 22 percent to portfolio management activity.