More than two-thirds of RIAs will emphasize efficiency in order to drive the growth of their business, according to The FA Insight Study of Advisory Firms: Growth By Design, an annual research report published by TD Ameritrade.
Following record growth for the industry in 2014, when advisor revenue spiked an average 14.4 percent, asset and revenue growth slowed last year to about half their 2014 rates, while median overhead expenses per client rose 31 percent.
Advisors expect this trend to continue through 2016 and are now looking at just how effectively they spend their time and money in order to improve their bottom lines.
"After 2014's record profitability and explosive growth, advisors now must be more disciplined—and that's not a bad thing," said Vanessa Oligino, director of business performance solutions at TD Ameritrade Institutional. "Firms need growth plans that go deeper than just riding the rising market tide if they expect their success to carry through different cycles."
The study identified “standout firms,” or those in the top quartile of revenue growth and income generation, and analyzed what these firms are doing differently from their peers.
For one, these top firms spend less on overhead expenses. More than half of standouts report client experience to be a key growth driver, compared to 41 percent of non-standouts. And standouts are twice as likely to consistently implement client onboarding and service delivery than non-standouts.
While efficiency seems to be the theme for RIAs, part of the growth issue could be attributed to pricing. The FA Insight Study found that only 34 percent of firms increased pricing in the past two years, down 8 percentage points from 2014. The study’s authors believe firms can appropriately raise prices, as long as advisors communicate the value of their services to clients.
"Advisors today have many possible paths to growth. That's exciting, but it’s also potentially distracting for firms without a well-designed plan," said Oligino. "For growth to be systematic and sustainable, advisors need to focus on delivering a trademark client experience and then have confidence to price that service accordingly."
FA Insight conducted the online survey of about 325 advisors between Feb. 15, 2016, and April 29, 2016. Firms had a minimum of $100,000 in annual revenue, and half of respondents had annual revenue of at least $1.5 million.
