It's hardly a surprise that amid the carnage in the stock market following the credit crisis last year, independent advisory firms took it on the chin in 2008, seeing their assets under management and revenues creamed. After posting large asset growth in 2007, RIAs participating in Financial Advisor's fourth annual RIA Survey saw discretionary and nondiscretionary assets together plummet by 13% in 2008. Of the 380 advisors who participated in the survey, 310 saw assets under management decline last year; 43% of the firms saw assets decline by 20% or more, 11% by 30% or more and 2% of firms saw their assets dip by more than 40%.
Such numbers were easily anticipated in a year when the S&P 500 index lost 38%. But the good news is that the great migration of clients to this space continues and far more firms picked up new relationships than lost them. Despite the understandable abdication of a few nervous Nelly customers, almost 80% of the firms who responded to the survey reported a net gain in new relationships in 2008. The median number grew to 243.0, or by 13%, from 215. This outpaces the growth of more than 10% reported in the 2007 survey, though it still trails the 17.32% new-client acquisition reported in 2006's poll.
The numbers are a reflection of what many advisors on Main Street could have told you already: Clients are moving away from brokerages and wirehouses, as many of their former advisors hide under rocks and refuse to answer the phones to address all the bad news. That's a big opportunity for advisors who are willing to work the phones, send out e-mails to their clients and otherwise ramp up their communications efforts.
"I think we're really seeing a change in 2008 and now into 2009," says Scott Houser, a vice president and principal at Ronald Blue & Co. in Atlanta. "Our clients are not just looking to their investment portfolios and measuring the growth rate, [and saying] 'Well if I get an 8% to 10% growth rate, all my financial needs are going to be met.' They are now taking a broader look at their finances and are looking at a comprehensive financial plan, and that's why our financial planning business has been growing. They're looking at things like not just accumulating net worth but looking at paying off debt, saving for college education, putting their money in buckets and getting a little bit more targeted approach."
Still, with assets levels sheared, account sizes have shrunk and profits have eroded, and many firms have had to lop off staff to deal with the income crisis. The median number of employees fell 11.1% to eight last year. This has meant an increased workload for those who stay behind; advisors are working harder for less pay and they're being stretched thin bringing new clients on board. And though a lot of clients and money are in motion, many more clients are still frozen and keeping their money sidelined in cash, another handicap since a cash-choked account doesn't yield much profit for financial advisors.
"People have less money to invest," says Brent Brodeski, managing partner with Savant Capital Management in Rockford, Ill., which saw its assets fall last year even though its client rolls increased by 136. "While we continue to bring clients over," he says, "the size of the dollars that they're bringing over is just inevitably smaller than it was."
According to this year's RIA survey, the size of the average client relationship fell 23.7% during 2008 to $1.67 million. Results in last year's survey showed the size of the average relationship growing 6.58% during 2007. Brodeski says Savant has kept a "war chest" of accumulated profits and used its technology to lower costs, and so far that means his firm has been able to avoid layoffs and has remained profitable, if not as profitable as it was before.
Among the fastest-growing advisors with $1 billion or more in assets in the 2008 survey were United Capital Financial Advisers in Newport Beach, Calif.; Mariner Wealth Advisors in Leawood, Kan.; GenSpring Family Offices in Palm Beach Gardens, Fla.; and Heck Capital Advisors LLC in Rhinelander, Wis.
Heck saw asset growth of more than 16%. Chairman Kenneth R. Heck, the company's chief financial officer and senior director of portfolio management, says that much of his firm's rapid growth came from an aggressive expansion (and a lot of 18-hour days) of pursuing nondiscretionary consulting assets to 401(k) and retirement plans, foundations, corporations and high-net-worth family offices after the firm's principals left their wirehouse relationship in May 2007. The good relationships have meant these clients have plowed money into the firm's direct investing accounts as well.
But just as good as the firm's offense was its defense, says Heck, in that it had a strong bond portfolio. "We probably had half or 50-50 on the discretionary side and our fixed income performed really well last year," he explains. "We do a lot of business on the municipal side, governments and corporates-and as the marketplace was seeing a downturn, we actually did well in those areas. We held high quality obligation bonds, and those areas did not take the hits that a lot of other bonds did."
"We know a lot of firms have grown [through mergers]" says Heck, "but we don't grow that way. It's always been a referral base."