SIDE BAR:
Top-Line Growth,
Bottom-Line Compression
For a bunch of professionals who can't manage their own practices, many independent advisors are maintaining or growing their top lines against tall odds. As they come up with ways to thrive in a competitive field and a down market, many advisors seem to be avoiding two things: lowering costs and prices.
That was one of the conclusions drawn from data collected in a study of the financial performance of advisory practices recently released by the Financial Planning Association, SEI Investments and Moss Adams LLP.
The study, which surveyed 590 firms, found that a substantial number have increased their financial planning fees. Of firms with more than $1 million in annual revenues, for example, 44.8% said they have increased their planning fee. On the other end of the spectrum, firms with under $100,000 in revenues, 34.6% have raised fees.
The survey also found that only 22% of surveyed funds bundle the cost of their comprehensive financial planning services into an asset-based fee. The rest charge for the service by using a separate fee. "A lot more firms are charging for their plans rather than bundling it in the asset management fee," says Philip Palaveev, senior consultant at Moss Adams and lead analyst on the study.
Two or three years ago, some observers felt the industry was entering a state of fierce price and margin compression. At the time, competition was building, wealth was on the rise, and the battle was on for a share of the financial advisory market.
Yet despite all that, asset-based fees of around 1% have held steady and remain the predominant source of revenue for most leading advisory firms. What the study instead found is that competition has forced advisors to expand their menu of services, says Mark Tibergien, a consultant with Moss Adams. "Financial planners are providing more services for exactly the same price," Tibergien says.
One analogy, Palaveev says, would be auto dealers coping with competition by making more and more options standard, rather than lowering prices. "We think this is the price compression most advisors are experiencing," he says.