Business is booming, but advisorsí bottom lines are barely benefiting.
Financial success may be advisors' true business, but it seems to be catching up to them.
Advisors and their consultants report rampant profit-margin and time compression has meant more work for the same money, a fight to keep pace with client demand, and acknowledgement that all forms of competition are ramping up to embrace the successful planner model.
Surely there are worse problems to have than too much business. Still, this one in particular continues to plague advisors, as they struggle with the notion of becoming more pencil-pushing business owner than client-friendly planner.
"I'm just not sure I want to get any bigger," says Jill Gianola, president of Gianola Financial Planning in Columbus, Ohio, a fee-only firm that has experienced explosive growth despite the sagging economy and stock market woes. "I really am at the crossroads in my business planning. I enjoy planning so much; I don't want to spend too much time doing administrative work. Still, I feel a responsibility to people who call and want to work with us," says the longtime planner, who is finally adding another practitioner to help with the workload.
Gianola's struggle with a growing business makes her an everywoman-or man-of sorts, when it comes to advisors. The fact is that the independent investment advisor continues to grab a bigger piece of the investable asset pie (22%) than does any other distribution channel in financial services. This trend will accelerate over the next decade, predicts Chip Roame, managing principal of Tiburon Strategic Advisors in Tiburon, Calif. "The boomer population is now in its peak earning and saving years, and as it moves toward its peak liquefaction years in the next decade the $17 trillion in assets now invested is likely to double. The sheer numbers and lower market returns will push many to seek independent financial advice," predicts Roame, who spends much of his time tracking financial and practice trends for the profession.
It is a David-like feat for the relatively new independent financial advisory industry not only to compete successfully with but to beat mainstream financial services players like wirehouses, regional broker-dealers, banks, insurers and discount brokers, many of which have spent millions on national advertising campaigns to create brand appeal. But don't think for a moment that executives in these financial institutions haven't taken notice and revamped their strategic plans to emulate the victors.
It's both a beguiling and a bedeviling time for the profession-one that promises to give even great advisors a run for their money. We asked some of the most renowned experts across the country to help us compile a definitive list of the issues advisors are most likely to be staring down in the months and years ahead.
Show Me The Money
Every business owner loves the thrill of a busy office. But is working harder really working smarter? The problem, says Mark Tibergien, the consultant who has spent a good part of the past three decades benchmarking the industry's performance and practices, good and bad, is that advisors tend to want to put their foot on the accelerator and the brakes of their business at the same time. "I can't criticize people for choosing to stay small or create a lifestyle over building a business, but many advisors are too big and too small at the same time," says the principal of Moss Adams, an accounting firm in Seattle, Wash. "They have overhead to support, but are fearful of getting any bigger to be able to grow to pay that overhead.
"The inevitable outcome is profit-margin and time compression," he says. "Advisors are providing more services for the same or shrinking fees, and [are] having to spend more time with clients as nursemaid and bottle washer to provide the services."
Advisors whose portfolios are down significantly can find their asset-based fees compromised as well. Equally as challenging, when planners take on the role of jack-of-all-trades because of a growing clientele, Tibergien maintains they are often faced with growing operating expenses. Administrative costs in particular are continuing to climb, as employees demand and get higher salaries and clamor for more staff, to offset job pressures. While the industry pays market rates, it does not tend to have adequate measures in place to evaluate administrative staff productivity and performance.