Whether they’re just starting out or veterans of several market cycles, registered investment advisor firms of any size can outperform peers through execution across three key areas: setting their pricing, structuring their teams and pursuing new business.
In fact, no matter how big or small, the most successful RIAs are masters of operational blocking and tackling that results in better-run businesses and higher levels of profitability—at least double that of their peers, according to our research on advisory firms with up to $4 million in annual revenues.
So while a well-run back office may not be sexy, it certainly can result in faster, sustainable growth. A recent FA Insight review of how the owners of the most successful firms run their businesses reveals a direct and meaningful correlation between operational rigor in these three key areas and robust bottom-line performance.
Proper Pricing Is The First Step
Turns out, the most powerful business tool at the disposal of advisors is pricing.
Specifically, growth-minded advisors have figured out that to advance quickly, they must be compensated in a way that reflects the true value of their advice -- and they don’t discount. These firms employ a more diversified pricing strategy and often look beyond assets under management (AUM) pricing, and charge flat fees or employ non-asset-based schemes, such as subscriptions or hourly rates which can be helpful in remaining profitable in challenging market environments.
Highly profitable RIAs also recognize that not all clients come to them with sizeable enough assets (yet!) to make AUM-based pricing viable.
The use of non-asset-based fees, together with greater discipline around pricing levels, not only gives RIAs a profitability advantage but can be a potential hedge in down markets. Whereas firms that are overwhelmingly reliant on AUM-based pricing have little protection in volatile market cycles, as many have discovered recently.
Build A High-Performance Team
At some point, every growing firm will need to make a hire or two, or four. The RIAs that excel are those that focus on building high-performance teams where everyone pulls their weight.
This means being extremely selective about who is brought onboard, since there is no room for excessive overhead.
All RIAs in growth mode may be on the hunt for a lead advisor, an associate advisor (or two), or non-revenue generating roles, such as an administrative person or a client service manager. The difference is that the most successful firms are highly selective and as a result, get much more out of each hire—in fact, 20 percent more revenue from each revenue-generating role, according to our research.