Some personal financial advice just can’t be replaced with an app.
Well-run mom and pop advisories offering superior personal services are going to hold their own against mega asset managers and other big, technologically minded firms, at least over the next few years.
That’s the analysis of Alan Johnson in his latest compensation report tracking results through the third quarter. The latest Johnson Associates “2019 Financial Services Compensation” report found it’s been a lean year for many financial professionals at the biggest firms, although many clients are doing well.
Markets are booming, but compensation growth rates for financial professionals have been sluggish, zero or, in some cases, negative, the report said.
For instance, asset management pay at the biggest firms declined on average by 3% to 4%. The report credited the decline to “slowing revenues and product shifting.”
Hedge funds were almost the same, the report said. Compensation here was only “mildly positive,” either flat or up only about 5%, according to the report.
The report said compensation in the private equity and real estate sectors was also weak: again, either flat or up only about 5%. Here the report also said there was, “positive fund-raising but slowing realizations. Economies of scale dominate.”
Johnson, the managing director for Johnson Associates, says his firm isn’t tracking pay at the small financial advisory firms. But he says the mediocre figures at the biggest firms suggest that the market still sees advisors at these small firms as necessary and important.
“These numbers highlight the need for personal financial advisors; it shows that technology is not replacing personal relationships,” he added.
The personal relationship, he contends, is often more important to the client than an app, no matter how dazzling the app is.
Johnson contends that the same trends—that bigger won’t necessarily be better—are likely to continue next year:
Here are some other highlights of the report in looking ahead to next year.
- In 2020, incentives will be down moderately (around 5%) at the mega fund. Why? Competition, product shifting, fee levels. There will be a continued squeeze on average/good performers, the report said.
- Downsizing will continue at a gradual pace. The trend will occur among operations people, low/mid-level technology staffers and middle management.
- There will be a “bubble” in pay in high-end technology and analytics jobs. Some firms are finding it difficult to create value.
- Effective base salary increases will continue at 4% to 5%.
- There will be accelerated movement out of New York City, San Francisco and Boston. These trends, Johnson says, are fueled by the high business costs, individual tax rates and high housing costs in those cities.
- Megafirms will face a “changing calculus” and find difficulty trying to create increases for average performers. Business changes will complicate comparisons and norms. This will trigger questions about the cost of great talent and accompanying challenges.
- There will be an increasing importance of brokers and personal relationships. Clients will pay more for advice.
The personal relationships show the market that the small independent advisory firm will continue to offer valuable and unique services, Johnson says.