A midyear survey of financial planning practices revealed that new business development overall has slowed well below most firms’ targets, as constraints on hiring continue to limit firm capacity.

According to the Ensemble Practice “Pulse of the Industry 2022 Mid-Year Survey,” firms added fewer clients in the first half of this year than they did in the same period in 2021. The net increase was just 2.4%, significantly below 2021’s 6% and not even close to the average 10% target.

“Firms are busy, but they’re busy with existing clients,” said Philip Palaveev, CEO of Ensemble Practice, a business management consulting firm that specializes in helping independent financial advisors grow from solo practices to team-based firms. “Today, only about half of consumers with more than $1 million in their portfolio have an advisor. So there are plenty of clients out there to be had with little direct competition, but because these firms aren’t hiring aggressively, their capacity for new clients is pretty low. And yet they’re looking to grow.”

The survey, which Palaveev said is conducted twice a year to provide a snapshot of current firm growth conditions, also found that when firms do hire, they’re paying roughly 15% more than they did last year.

“This is an industry that’s all about talent. And if you want to attract the best talent, it’s not just about offering more money,” Palaveev said. “You should offer money—you can’t hire without it—but you also have to offer a career. You have to be able to show how the firm will grow, how this person’s career will grow and how you’re going to help them. I think firms can do this a lot more aggressively.”

The survey also looked at some of the general industry trends, including the Great Resignation and stock market volatility, to see how they are affecting firms.

When the Great Resignation hit the advisory industry, for example, the bigger firms got it worse. The survey found 70% of large firms reported losing employees in the last six months, while only 27% of midsize firms reported the same problem. Stability at small firms was even better, with just 9% reporting resignations, the survey found.

Stock market conditions have hurt assets under management, despite additional clients and diversified portfolios, the survey found. With a 20% drop in the S&P by midyear, the worst-performing independent advisory firms lost 14.5% of their AUM, while the best-performing lost 7.2%. 

The market also crimped advisors’ efforts to spread equity ownership around at their firms: Just 16% of firms said they’re adding new partners, while 22% said they were in 2021, and 24% of firms had equity transactions between existing owners, a drop from 33% last year.

“Prices are a little high right now, so it’s getting harder for people to become owners. But in order to grow, you have to let people buy in,” Palaveev said. “Growth really is the Achilles’ heel at the independent advisory firms. They’re great at relationships, but not so good at growth.”

The firms in the Ensemble Practice survey identified their top four priorities as adding new clients, recruiting professionals, improving efficiency, and training and developing staff.

Some 74 firms—past and current clients of Ensemble Practice—participated in the survey. They had an average of $1.3 billion in assets under management.