The 2019 FA Insight Study of Advisory Firms: People and Pay

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The 2019 FA Insight Study of Advisory Firms:

People and Pay

The 2019 FA Insight Study of Advisory Firms: People and Pay

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About the SurveyThe objective of this research was to understand how advisory firms are best leveraging and optimizing their greatest asset—people. This year, People and Pay offers unique insights into cultivating talent, succession planning, capacity planning, organizational structure, diversity and compensation trends.

This research was completed from February to March 2019 through an online survey with 405 independent advisory firms. All survey respondents have been in business for at least one year, generate a minimum of $100,000 in annual gross revenue and serve individuals or households as primary clients.

The 2019 FA Insight Study of Advisory Firms: People and Pay

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A big "thank you" to the 405 advisory firms that participated in The 2019 FA Insight Study of Advisory Firms! Your participation is what allows us to continue to bring intelligent business insights to the advisory firm community year after year. This year, the study returns to a People and Pay focus, examining how firms are best leveraging their most important asset, their people. Specifically, the study takes a look at how firms are organizing, motivating, developing and retaining people to extend their competitive edge and achieve long-term, sustainable growth in a time of accelerated change.

Another Prosperous Year—But Will It Continue?

Firm owners can be proud of the business growth they achieved in 2018, which came on the heels of record or near-record rates of growth in 2017 (Figure 1). Client growth for the typical firm, at 7.4%, just missed topping last year’s record and exceeded every other year dating back to the first FA Insight study in 2009. Likewise, firm revenue grew at a median rate of 14.3%, well above the 12.1% average rate across our studies in the preceding five years.

Introduction

7.5%Client

Growth Rate

7.4%Client

Growth Rate

13.8%Revenue

Growth Rate

14.3%Revenue

Growth Rate

Figure 1Median Client and Revenue Growth Rates, 2017–2018

2017 2018

The 2019 FA Insight Study of Advisory Firms: People and Pay

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Advisory firms anticipate closing out 2019 with record growth rates in terms of their ability to onboard new clients. Growth in assets under management is expected to rebound significantly. Revenue generation, however, appears to be a bit of a concern with firms reporting a possible five percentage point drop in growth. Rapidly depreciating security markets in late 2018 likely triggered the lowered expectations for revenue in 2019.

Firms Are Getting Smarter About How They Optimize People Resources

People continue to be the largest investment for advisory firms, accounting for 77% of the typical firm’s expenses and 59% of total revenues.

Survey participants also report record levels of productivity in 2018 for both revenue generated per revenue role and revenue generated per FTE (full-time equivalent).

77% of every expense dollar goes to people expenses; 59% of total revenues pay for people-related expenses.

Firms are also reporting that the majority of revenue generators are either at or under capacity than in prior years. This may suggest that firms are proactively hiring ahead of the need in anticipation of supporting future growth and to provide new hires adequate time to come up the learning curve rather than orienting them with a “trial by fire” approach.

$547,645Median revenue per revenue role (up 14% over the past 2 years)

$228,523Median revenue

per FTE (up 13% over the past 2 years)

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Stronger Emphasis Is Needed on Development and Performance Management

While firms seem to have cracked the code on driving individual productivity, at least in the short term, more emphasis will be needed on how firms can continue to invest in the professional development of their team members and more effectively manage performance. Given the significant investment related to people, firms need to allocate more time and resources toward cultivating talented individuals within their firm and over time increase their contribution toward firm goals.

Compensation

How much to pay and the optimal model to compensate individuals in various roles is one of the most popular and debated topics within the advisory industry. It is also a critical component in motivating and retaining high-performing individuals. Compensation trends for three of the most popular and business critical roles from the study follow. From an upward trend perspective over the two-year period, 2017–2019, the median Lead Advisor compensation jumped an impressive 12.5% to just over $189,000; the Operations Manager position experienced an 8% increase. The Associate Advisor position, after increasing steadily in recent years, declined 8.5%.

The positive … 75% of firms provide specific guidance on where to improve when delivering feedback.

Areas of opportunity:• Only 54% of firms measure performance against documented goals

• Only 46% of firms monitor “action items” for follow-up

• Only 37% of firms directly tie performance evaluations to incentive pay

Lead Advisor and Operations Manager Positions Command Highest Wage Increases (2017–2019)

Lead Advisor up 12.5%

Associate Advisor down 8.5%

Operations Manager up 8.0%

75%

The 2019 FA Insight Study of Advisory Firms: People and Pay

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New This Year—a Look at Diversity in the Advisory Industry

Diversity has many facets and is often discussed in too narrow a context, primarily that of gender, race and ethnicity. Diversity can also include ensuring you have individuals at the decision-making table who think differently to ensure better outcomes, or being open to hiring individuals with different educational or career backgrounds. As the American population continues to grow more diverse and the benefits of embracing diversity within the workplace become more apparent, we thought it would be beneficial to take a look at the state of the state.

Where the opportunity lies for the majority of firms is first in adding more team members from underrepresented racial or ethnic groups (typically less than 5% of firms’ personnel are diverse). Second, firms could benefit from having more women in revenue generating and leadership roles within advisory firms. Lastly, just 16% of firms currently maintain diversity initiatives. More firms can champion diversity initiatives aimed at creating awareness and fostering an environment of inclusion as well as to better position themselves to recruit more diverse individuals in the future.

People Are the Engine That Drives Growth

The importance of building, motivating and retaining a high-performing team cannot be overstated. Engaged employees who understand the role they play and feel supported and valued can make important contributions to a firm’s growth trajectory and longer-term ability to thrive in an ever-changing world.

Promising Trends

22% of firms brought on at least one

new owner (2017-2018)

The number of owners 40 and

under is equal to the number of owners

over 60

Just under half (46%) of all

advisory firm team members are

women

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This material is designed for a financial professional audience, primarily Registered Investment Advisors.

This brochure is published by TD Ameritrade Institutional for informational purposes only and is intended to provide a general overview about the topics covered and to help you identify opportunities in your practice and important issues you may wish to consider in developing a strategy. This should not be construed as legal, tax, compliance or professional advice. While TD Ameritrade Institutional hopes that you find this information educational and thought-provoking, you need to determine whether the information is appropriate and applicable to you and your firm.

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