October 24, 2013

Growth by Design 2012: Why Unrestrained Growth Is No Good—And How to Avoid it

Following FA Insight’s 2010 “Growth by Design” study, the firm revisited the challenges a firm faces to achieve growth and the new challenges that arise as it does so.

FA Insight’s Eliza De Pardo and Dan Inveen co-authored another series of articles that breaks down the 2012 iteration of the study. They found that while growth is necessary to maintaining a functioning and profitable firm, it can get carried away. Unrestrained growth can lead to problems in human capital and erode profit margins.

“Growth is the lifeblood of the independent advisory industry,” De Pardo and Inveen wrote. “Mismanaged growth can put firms at risk, however, stressing their foundations and threatening profitability.”

Click through the following slides to browse each of De Pardo and Inveen’s articles on the 2012 “Growth by Design” study. Visit the archive here for all our Growth by Design coverage.

Striving for Sustainability: 2012 Growth by Design StudyStriving for Sustainability: 2012 Growth by Design Study, October 2012

Growth is the lifeblood of the independent advisory industry. In addition to greater rewards to firm owners in the form of increasing returns and higher share value, the potential benefits of growth extend to employees as well as clients. Growth creates career opportunities and greater earning potential for staff. Growth can help broaden a firm’s resources and deepen its technical expertise, resulting in improved quality of client service delivery.

Mismanaged growth can put firms at risk, however, stressing their foundations and threatening profitability. To achieve sustainable growth, firms need to take a deliberate approach, one that FA Insight describes as “growth by design.” With a thoughtful, strategic approach, firms can take advantage of economies of scale, build value and protect profitability.

Read more from the October 2012 issue of Investment Advisor. Visit the Growth by Design archive here.

Growth Gone Wild: 2012 Advisor Growth by Design StudyGrowth Gone Wild: 2012 Advisor Growth by Design Study, January 2013

The great majority of advisory firm owners fixate on growing their businesses. It is a fundamental characteristic of their DNA. And why not? Multiple positive outcomes can be achieved as a firm grows and achieves greater scale. These aspirations, however, frequently overlook the very real risks that rumble beneath the growth trajectory and threaten to derail firms when growth goes wild.

Both in terms of recent history and objectives for the future, independent advisory firms are clearly in growth mode. In each of the last three years, the typical firm achieved double-digit percentage increases in revenue. As of this writing, client growth was expected to finish out 2012 at an annual rate greater than any year since before the onset of the recession.

Read more from the January 2013 issue of Investment Advisor. Visit the Growth by Design archive here.

A Defense Against Unwelcome Growth: 2012 Advisor Growth by DesignA Defense Against Unwelcome Growth: 2012 Advisor Growth by Design, April 2013

Bouncing back from the Great Recession, advisory firms have returned to growth mode. While the turnabout is a welcome one, few firms are growing in a manner that is sustainable. Of those firms that participated in our fourth annual industry study, “The 2012 FA Insight Study of Advisory Firms: Growth by Design,” the vast majority (85%) reported achieving significant growth in recent years. About three-quarters of these growing firms, however, also reported some type of negative impact as a result of growth.

Common side effects associated with growth tend to be related to people. Providing clear career paths becomes more challenging, dependency on key individuals increases and staff become overworked and stressed. Additionally, growth frequently stresses a firm’s technology and operational infrastructure.

Read more from the April 2013 issue of Investment Advisor. Visit the Growth by Design archive here.

Growing Strong: The 2012 Growth by Design StudyGrowing Strong: The 2012 Growth by Design Study, August 2013

The daily vitamins that are best for a child to take in order to achieve healthy growth are different from what a young adult or senior citizen requires. As the years progress, so do our dietary needs—Flintstones vitamins make way for Centrum Silver.

Advisory firms follow a similar logic. As firms reach different stages in their development, the focus for what will best sustain growth and longevity shifts. While many operational best practices remain relevant across the development spectrum, certain practices return a greater benefit at certain stages.

Read more from the August 2013 issue of Investment Advisor. Visit the Growth by Design archive here.

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