The financial advisory business has been on a 10-year bull run with growing revenue, assets and profits. But according to the recently published 2019 Adviser Compensation & Staffing Study, sponsored by Pershing, cracks are beginning to emerge.
This year’s study shows that advisory firms continue to drive increased revenue and higher profitability and are generating substantial income for owners. However, productivity is largely flat and compensation is barely moving.
According to the study, conducted by researchers at InvestmentNews, firms of all sizes experienced double-digit growth with the median growth rate reaching 11 percent in 2018 — more than double the growth experienced in 2016. Super ensembles (firms with revenue greater than $10 million) led the pack, with a growth rate of 15 percent. Firm profitability was also strong, with high revenue growth, flat overhead expenses and lower direct expenses.
The study indicates that revenue increases have not benefited all employees equally in terms of compensation. Executives, particularly CEOs and lead advisers, received the largest compensation increases since 2017 with a 9 percent and a 4.5 percent cumulative average growth rate, respectively. Meanwhile, most other positions experienced modest compensation gains at about 2 percent during the same period.
The study also showed that team productivity remained flat. The metrics, revenue-per-staff ($253,000) and revenue-per-professional ($464,000), have remained mostly unchanged since 2014.
“Stagnant productivity could be a positive indicator if a firm is investing in new talent, as recent hires often need time to acclimate and achieve better productivity,” says Christina Townsend, director, advisor solutions at Pershing, a subsidiary of BNY Mellon. “However, if you have a mature team that’s firing on all cylinders — and you have not invested in process improvement or automation to help scale service — this could be cause for concern.”
The study also found new business growth coming roughly equally from referrals, new assets from existing clients and new business development efforts. Firms retained all but 2 percent of their clients, underscoring firms’ success in retaining clients — crucial to overall revenue growth.
Meanwhile, 78 percent of advisers say they are operating at near capacity. Firms are looking to address the issue by hiring additional junior-level staff to support lead advisers.
Mike Consol (m.consol@irei.com) is editor of Real Assets Adviser. Follow him on Twitter @mikeconsol to read his latest postings.