The cost of keeping up with new compliance regulations is eating into advisors' profit margins, according to a new study.
The study by Rydex Investment's AdvisorBenchmarking subsidiary found that advisors were hit with a 153% increase in legal and compliance-related costs last year, contributing to a fifth straight year in which profit margins have decreased.
Advisors did, however, see revenues and assets under management increase 15.4% and 22.5% respectively.
The study, conducted online and by telephone, consisted of responses from 1,023 advisors taken from March 2003 to June 2004.
Among the other findings:
To compensate for rising overhead costs, advisors reduced their marketing and advertising budgets and depended heavily on client referrals for business growth.
Nearly 15% of advisors said they moved from a strategic to a tactical asset allocation investment policy, while their equity allocations nearly doubled to an average of 68%.
Advisors spent more time serving clients and managing portfolios as opposed to marketing and other administrative tasks. Respondents spent 35.5% of their time providing client services, up from 31% in 2002.