Three Observations
Having worked in this industry for 30 years and coached advisors for more than 20, I will say that I am not surprised by this data. Here’s what my experience tells me.
1. The typical advisor works really hard for their first 10 years in the business. If they survive, they start making several hundred thousand dollars a year in personal income and they’re happy. At that point, they focus on maintaining the business, and it grows through the referral of more new clients to them (whose assets make up for the distributions to and departures of previous clients). The business also grows through rising markets over time. And let me be clear, there’s nothing wrong with this scenario.
2. There’s a small number of advisors who are not satisfied with a $1 million to $3 million revenue practice and want to build an eight- or nine-figure revenue business. We all know who they are. The funny thing is, many of them show substantial asset and revenue growth, but the vast majority comes from M&A growth, not net organic growth.
3. If an advisor wants to increase the long-term value of their firm and not just focus on sustaining their current income, they must double down on organic growth. Very few advisory firms deliver that organic growth in a consistent, repeatable way. And many of those who do are relying on their referrals from custodians—which results in concentration risk.
The most valuable firms are those demonstrating consistent net organic revenue growth.
Is your firm one of them?
Steve Sanduski, CFP, is a financial advisor business coach and the co-founder of ROL Advisor, a discovery process technology system. He’s also a New York Times best-selling author and host of the Between Now and Success podcast.