Most financial advisors expect their businesses to grow in 2011 at a brisk pace, according to the latest Financial Professional Outlook(FPO) survey sponsored by Russell Investments and released Wednesday.
Of the 800-plus advisors surveyed in the quarterly poll, nearly a third (31%) predict revenue growth of 10-14% in this year and almost half (44%) expect to see revenue growth of 15% or more.
“The latest survey results convey a renewed sense of confidence and optimism amongst advisors, about not only the capital markets but also their own businesses,” said Kevin Bishopp, director of practice management for Russell’s private-client services business, in a press release.
“While the global economic recovery continues slowly, investor panic has largely subsided,” Bishopp explained, “and advisors are now able to shift their focus back to meaningful long-term planning and wealth accumulation instead of triaging client concerns and addressing their anxieties.”
The majority of advisors (86%) are optimistic about the capital markets over the next three years, up from 59% in December 2010, and 36% feel their clients are optimistic about the capital markets in the coming years vs. 7% last quarter.
(A video-based discussion of the latest poll is now available online, according to Russell.)
When asked for the reasons behind their anticipated business growth, 72% of respondents said new client acquisitions are a key contributing factor. Of the advisors expecting revenue growth of at least 15% this year, 88% said new client acquisitions are the primary growth driver.
Nearly half of the advisors surveyed (49%) believe generating more revenue from existing clients will drive revenue growth, and 40% cite market appreciation as a key component.
Bishopp cautions against such heavy emphasis on conventional wisdom supporting new client acquisition as a primary driver of growth. “Russell encourages advisors to focus efforts internally first to drive significant results for clients and in turn build client satisfaction,” he said in a statement.
“Doing this can have a multiplier effect. Not only can you grow revenue from your existing client base, but you can also make clients your most influential advocates and in turn sources of quality referrals,” he added.
According to the survey, nearly one quarter (23%) of advisors do not segment their client base. More than one third, 38%, of advisors use assets under management as the most common measure cited for client segmentation, followed by revenue (16%).
Respondents also reported spending 50% of their time with their “top-tier” clients. Bishopp considers low given that top-tier clients typically generate 70-80% of an advisory firm’s total revenues. “
We find that a majority of advisors’ top clients are underserved in relation to the revenue they generate. As such, revenue should be a central tenet of client segmentation,” said Bishopp in a release. “Advisors should devote 80% of their time and resources to top-tier clients, create leverage and efficiency in serving second-tier clients and evaluate which third-tier clients may in fact be over-served and unprofitable.”
The best advisors “obtain new clients from inbound referrals, not marketing or prospecting efforts,” continued Bishopp. “Referrals are a direct reflection of the value that the advisor delivers to the client and therefore, advisors who segment their book of business and drive significant value to their top relationships are in the best position to grow their business relative to peers.”
According to the latest FPO survey, advisors and clients appear to have varied perspectives on what obstacles keep investors from reaching their financial goals. More than half (51) percent of respondents believe that their clients feel their own lack of comfort with risk is a primary impediment, and 51% also point to the low-return environment as a major perceived obstacle amongst clients.
The role of the low-return environment is also significant, with 43% pointing to this as an impediment to clients’ attainment of their goals.
Meanwhile, 58% of advisors responding to the survey say that what concerns them the most is clients underfunding of their retirement accounts.
“Advisors must work closely with their clients to help them understand that if they remain risk-averse for the long haul, they are likely to face a different kind of risk down the road: less money to spend in retirement or even running out of money in retirement,” said Bishopp, in the release. “Advisors play an important role in refocusing clients to think about investing success in terms of matching their ultimate savings to their eventual spending needs. In this context, decisions about asset allocation can be made more rationally and separated from any knee-jerk feelings about what the market is doing at the moment,” he explained.