By several measures, 2012 was a banner year for financial advisors. As measured by the fifth annual study of independent advisors by Tacoma, Wash.-based consulting firm FA Insight, the median operating profit margin among advisor firms last year was 20.5%, which is the highest level since FA Insight started tracking the space. In addition, the $1,324 in profit per client generated in 2012 was a five-year high and more than double what firms generated in 2009.

FA Insight’s study comprises feedback from 211 financial advisor firms. Among the findings:

• Owner income rose nearly 11%, to $610,168.

• Total median compensation was $174,000 for lead advisors; $83,000 for associate advisors; and $58,024 for support advisors.

• AUM per client jumped about 6%, to $959,459.

Cost control, coupled with solid productivity and greater AUM per client, contributed to higher profits. Nonetheless, things could be better. According to FA Insight, firms remain weak in how they position people in the organization and in their general organizational structure planning. They’re also lacking in knowing how to best motivate their team members.

Among the report’s takeaways:

• Hiring another lead advisor isn’t always the most effective way to expand lead advisor capacity. Associate advisors and non-professional support represent a more plentiful and cost-efficient labor pool for leveraging lead advisor time. And they can be groomed to become future lead advisors.

• Firms that serve clients through defined teams were the most productive and profitable and grew revenue at an annual rate 50% greater than their peers.
Client service teams not only accelerate growth and profitability, they also provide a formal structure for reducing lead advisor dependency and supporting career path progression toward the lead advisor position.

• Most firms can benefit by expanding incentive compensation as a motivational tool and linking it to objectives aligned with the firm’s interest.