Financial advisor firms with multiple advisors do better than solo practices by a number of measures, including how much the owners profit from the firm and the ability to attract higher-net-worth clients, says the new Financial Planning Association Practice Management Scorecard.
Furthermore, firms in the four large markets on the east coast--New York City, northern New Jersey, Philadelphia and Washington D.C.--are markedly more successful than firms located elsewhere. The Scorecard breaks down financial advisor practices in a number of different ways, including by geographic area, and ranks firms in their region.
Practices in the four big eastern markets have a net effective payout of nearly $300,000 per owner, compared to slightly more than $200,000 for practices in all other markets.
Net effective payout is the total profit that a practice makes at the end of the year, plus any compensation paid to owners during the year, divided by the number of owners. The system was adopted because some firms pay owners on a regular basis during the year, while others divide profits at the end of the year, while some do a combination, says Todd Crowley, head of broker productivity and compensation at McLagan, the financial services consulting division of Aon Corporation, which compiled the Scorecard.
According to the Scorecard, multiple advisor firms have higher profits per owner than sole practices ($276,000 versus $199,000) and have clients with higher average net worth ($487,000 versus $250,000). Advisors in both multiple-advisor firms and sole practices that operate 100% fee-based businesses also have higher profit margins than those that operate a combination of fee and commission business, the Scorecard says.