At the onset of the pandemic, one of the biggest fears among financial advisors was having to cut staff. But that turned out not to be the case, according to industry consultant Philip Palaveev.

A survey conducted by Palaveev’s firm, Ensemble Practice, revealed that layoffs were near non-existent in the financial advisory industry. Instead, it showed that firms continued to hire. Fifty-eight percent have hired for a new position during the crisis so far, and 42% of firms ended the first six months with more employees than they started with, according to the survey.

Also, the average change in assets under management (AUM) was minimal at -1.2%, and very few firms reported suffering significant declines (low quartile is -3.2%) or gaining ground (high quartile is 1.2%).

The survey included 72 firms with an average of $1.746 billion in assets under management. Most of the participants were alumni of Palaveev’s G2 Leadership Institute, a management and leadership training program for financial advisors.

Palaveev said the fact that firms did not have layoffs had little to do with the Paycheck Protection Program under the Cares Act. Rather, it had to with the industry not losing much revenue, he said. The S&P, he noted, has remained solid  since the beginning of the year. “The vast majority of firms are firmly tied to the market. They are like a captain to a ship and when the ship goes down, they go down with it,” he said.

“Also, when the market returns to some level of stability, revenue returns to a level of stability as well, so the loss of revenue has been minimal,” he said. He noted that the firms’ profit and loss statements look the same as they did in 2019.

The survey found that the typical firm lost 10 clients or 1.4% of its client count, which is actually lower than normal, and on average, firms added twice as many clients as they lost. Palaveev said firms increased their net client count by 8.2%.

Palaveev said one of the areas that he was surprised by was equity transactions. “With so much volatility in the market, you would think that it’s kind of difficult for a buyer and seller to agree on what’s happening and how to proceed. But quite the contrary,” he said, noting that very few firms are reporting delaying a transaction.

The survey showed that 34% of firms added a partner in 2020; 32% executed transactions between existing partners; and 6% of firms added an external investor.

Many of the firms had to adapt to changes during the crisis, According to the survey, more than half (56%) of firms redefined their processes; 46% rolled out new marketing initiatives; and one-third changed their software systems to suit the new environment of working remotely.

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