The financial advisor business last year experienced its fifth-consecutive year of asset growth, but firms face a number of challenges such as attracting good employees and keeping costs down, says a new Rydex AdvisorBenchmarking survey of 1,020 financial advisory firms.
According the survey, assets under management rose by 9% in 2007 for registered investment advisors, to a median of $155 million. At the same time, net profit margins decreased to 24% in 2007 versus 28% the year before. One of the big culprits: office expenses that rose 12% last year.
More advisors are increasing staff and the office space and equipment needed to support them, driving up costs. After remaining steady for several years, staffs increased by an average of one person per firm, says Maya Ivanova, research manager for Rydex AdvisorBenchmarking, Inc. in Rockville, Md. At the same time, advisors are increasingly concerned about retaining staff, and as a result are spending more money on employee seminars (54%), continuing education (49%) and tuition reimbursement (46%).
To better manage their businesses, advisors are outsourcing many functions, including 80% of advisors who always outsource trading and 71% who always outsource portfolio management. This is the first year this particular data was gathered, so there aren't any prior-year comparisons.
Minimum wealth levels at firms grew from an average of $421,000 in 2006 to $425,000 last year. And--no surprise here--advisors are focusing on potential baby boomer clients 44 to 62 years of age.
The survey was conducted from March through May 2008.