Which businesses goals are growth-minded independent advisor firms most focused on right now? Based on data gathered through Herbers & Company’s training app, four stand out: transforming sales-based cultures into service-based cultures, improving efficiency ratios, making better use of the resource of time and implementing fixed-fee models.
This snapshot of advisor firms’ priorities, gathered from nearly 200 firms across a range of sizes, is encouraging. The firms’ focus areas are among the ones that can really move the needle on growth. And their concerns are a sign of the industry’s ongoing maturation—sustainable financial advice enterprises are being built to scale, systematically and step by step. Before we dive into the data we’re seeing, let’s look at where and how we gathered the information.
In late June, we launched the Herbers & Co. Academy app, which provides 24/7 access to business strategy, management, and innovation training and tools. Our goal in launching the app was to use our more than 18 years of business consulting experience to help advisor firms accelerate their growth.
Nearly two months in, we were approaching 200 members globally. These firms represent a cross-section of the advisor landscape—most are in the U.S., while several are in South Africa, the U.K. and Canada. Their assets under management range from less than $200 million to multiple billions of dollars. As a business, we’re pleased with the participation. But the growing number of firms using the app also gives us a window into what growth-minded advisory firm leaders care about right now, in the present. These trends are the information we’re sharing in this article.
Our initial snapshot of industry trends is gleaned in a few different ways. First, our service team responds to member requests in real time and we track the topics that the membership is asking about. Second, we analyze which available training topics users are clicking on the most—which prerecorded classes they’re attending and which tools they are downloading from our training library. Here, then, are the areas advisors are most focused on, in order of popularity:
41% of membership is tempted to shift to a service-based cultures away from a sales-based culture. We see several factors driving the shift away from the rainmaker model to one based on deep, integrated marketing programs that are rooted in client service. As firms grow larger, one or two talented business developers are not enough to meet ongoing growth goals. And strong, sustained growth is important, among other things, because most ownership successions are financed out of firm growth. In addition, recruiting young advisors is increasingly challenging, which means it’s becoming more and more mathematically difficult to find a next generation of talented rainmakers to sustain a sales-based business model. Shifting to a service-based culture, where firms market themselves for their advisors—rather than relying on those advisors to grow the business—offers a way to address all these challenges.
35% of membership is focused on efficiency—how advisory firms best grow and scale organically. Interest in efficient growth is catching on fast with firm leadership spurred on by burgeoning M&A activity. What’s not being seen is the number of firms who are solely focused on organic growth strategies. Prior to about a year ago, few of our clients were asking about how to analyze and improve their “efficiency ratio,” which is a measure of a firm’s ability to use its assets to generate organic growth. Advisors want to hear about ways to achieve the highest possible level of growth and capacity using their existing people—augmented by better human capital structures; processes and procedures; technology; and brand enhancement.
35% of membership is requesting time management help. Smaller firms’ leaders are interested in how to organize their businesses’ daily activities to maximize efficiency. They want to know how much time to spend in certain practice areas such as technology integration and operational management, versus with clients. And they don’t want the improvement to put the squeeze on their personal time. Larger firms, meanwhile, are interested in benchmarking revenue generated per professional. In my 20 years of consulting, this has been a consistent undercurrent and I expect it to continue.
22% of membership and rising are focused on fixed-fee service models. Retainer fixed fees are catching on in the wealth management industry. A recent J.D. Power survey found that 74% of millennials were partial to a one-time fee-for-service model, with 73% stating they preferred a subscription model. Academy members’ interest in the topic mirrors those findings. The perceived value of fixed-fee relationships is reflected in their rising retention rates. In 2020, firms that have worked with Herbers & Company reported a 97.7% retention rate for their clients paying fixed fees. That rate exceeded, for the first time, the retention rate of clients paying AUM fees. It’s important to note that firms offering both AUM and fixed-fee options generally haven’t reported significant “cannibalization” issues.
Advisory firms are keen to grow—to add the services and solutions that scale can unlock, to elevate their valuations, and to prepare for a sale or for internal succession. Smart firms are continually aligning with consumer demand in areas such as fees and service-based cultures. And they recognize that their finite human and financial resources require them to prioritize the initiatives that will most efficiently power their organic growth, as advisory firm valuations continue to climb.
This data from Herbers & Company’s perspective is all good news. Many firms already understand which levers to pull to make growth happen most effectively. It’s a positive sign that the independent space is continuing to evolve and take action in their firms in ways that will benefit clients, firms, and team members and expand organic growth.
Angela Herbers is founder and chief executive of Herbers & Company.