Sloppy spending can squeeze out or dramatically reduce profits at advisory firms, according to a study of advisors by TD Ameritrade Institutional.
At a time of declining profits, revenues and assets under management, many advisory firms surveyed said that they are paying more attention to overhead, the study noted.
“More than two-thirds said they will emphasize operational efficiency to drive future growth, improving consistency and productivity levels to impact the bottom line,” stated the annual advisory firm study, “The FA Insight Study of Advisory Firms: Growth by Design.”
Indeed, for many firms, operating efficiency could be the difference between a run-of-the-mill and top-flight advisor practice, the report said.
“Operational efficiency may be the single-most-important business area that distinguishes the standout firm,” the report stated. “At every development stage, the typical standout firm devoted a much lower percentage of its revenues to overhead expenses. This trend is consistent across the past eight years. The firms’ comparatively lower expenses played an important role in greater profitability per client and ultimately higher income for firm owners.”
A TD Ameritrade Institutional official, noting the recent boom years in the stock market, warned that advisors need to avoid the operational problems that sometimes happen in fat times.
“Operational insight might have not seemed so important in the past, but today advisors are saying it is becoming more and more important,” said Eliza De Pardo, principal director of consulting for TD Ameritrade’s FA Insight.