Even if there is a recession, it might still be a great time to grow a wealth management business, industry consultants say.
Yet almost paradoxically, many advisors have seen negative growth over the past year, in revenue terms, due to a bear market in equities and the poor performance of bonds, and the industry’s reliance on an assets-under-management fee model.
Growth doesn’t have to mean an immediate jump in revenue, said Shauna Mace, head of practice management at SEI, an Oaks, Pa.-based TAMP and advisor services provider.
“Growth means different things to different people. It can be traditional growth in the sense of AUM and revenue, but what we really mean no matter what metric we’re using is progressing the business,” she said. “It’s always a good time to grow organically. If we look back to 2008 and 2009, firms that put in the effort reaped the rewards. The people who were communicating with clients, the firms that put them out there to clients or externally to the market and provided value, they grew.”
Is It Easier To Grow Now?
A lot of money is in motion, said Mace, not the least of which is tens of trillions of dollars of intergenerational wealth moving to Generation X and millennials over the next few decades. Money in motion is an instant opportunity for growth.
But there’s also the benefit of adding clients and assets in a down market and guiding them during a recovery phase, said Derek Bruton, senior managing director at Gladstone Group, a Plymouth Meeting, Pa.-based mergers and acquisitions advisor.
“Our experience has shown that good advisors, smart advisors, tend to grow their businesses very well during a bear market,” said Bruton. “They add new clients and assets, and then, when the market turns around and we see a bull run, which has followed every bear market in history, it’s a whipsaw effect that produces a lot more AUM because of that organic growth that the firm succeeded in achieving because of the bear market.”
Recessions are an opportunity for client acquisition, said Bruton. In a bull market, everything seems to work well and people are more confident in their abilities as self-directed investors, but during drawdowns, they’re more likely to seek help and holistic financial advice.
Gladstone’s research has shown that during market downturns, investors with an advisor tend to be happier than those who do not have an advisor, said Bruton.
M&A Environment
“It’s still a good environment for acquisitions and consolidation,” said Bruton. “Really for two reasons. One is the demographics in our industry. There’s advisors that are at the later stages in their careers who don’t have succession plans in place. They need to find an option to sell internally or sell to an external firm. The demographics are in favor of high consolidation.”
Advisors are also looking to provide more services to their clients like tax planning, estate planning and insurance, said Bruton, leading them to a crossroads decision—radically grow their practice to add new capabilities and resources or partner with a larger firm already capable of offering holistic financial services?