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Three Growth Drivers of the Best Advisory Firms: Practice Edge for May 2010

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In the wake of 2008–one of the most devastating market crises–followed by one of the market’s most dramatic rebounds in 2009, the question on many investment advisors’ minds is: “How did RIA assets fare”? According to preliminary data from the Rydex|SGI AdvisorBenchmarking survey conducted in March-April 2010, the answer is resoundingly positive. Across all participants in our survey, median assets under management grew 28% in 2009 to reach the highest asset levels in the last 10 years. This month, we provide insights into the three major growth drivers of the top advisory firms in the near term. First, let’s place those drivers in the context of the overall advisory firm universe.

Begin With the End in Mind

While it’s true that positive stock market performance drove much of the increase in RIA assets in 2009, efforts by RIAs also helped boost their top, and bottom, lines. Many advisors were able to raise new assets, and their asset allocation and investment management skills helped them retain assets. While the S&P 500 was up 26% in 2009, RIAs’ asset under management (AUM) increase was a bit higher: 28% for the same period.

Advisory firms, on average, manage more money today than they have managed in the last 10 years. Looking to the future, the industry as a whole is pretty optimistic about continuing to increase assets–almost half of advisors surveyed (44%) expect that they will grow their business (as measured by AUM growth) by 11% to 20% annually over the next five years.

Just as one of Stephen Covey’s “Habits of Highly Effective People” is to begin with the end in mind, highly effective–and successful–advisors begin planning by first determining their goals. After these goals–growth in assets and profitability, for instance–are crystallized, they can then move on to planning how to reach them. This will ensure that their activities and investment decisions are directly tied to their goals.

Expectations for AUM Growth

How will advisors reach their asset-growth goals? Of those advisors surveyed, 79% expect referrals from existing clients to drive growth in the next five years. Almost a third (63%) of advisors believe that organic growth from existing clients will help them hit their asset goals. In addition to securing referrals from their clients, advisors will likely focus on boosting their marketing efforts and on networking. Half of those surveyed believe that marketing and networking with other professionals will propel their firms’ growth in the next five years.

The Three Top Growth Drivers

By keeping growth projections in mind, advisors will operate more effectively–and be able to more easily decide on critical action steps to reach asset-growth goals. What are the next steps advisors should take? To position their practices for future growth, many advisors will make improvements in three areas: technology and data access; strategic planning; and benchmarking.

Driver No. 1: Technology and data access.

The majority (34%) of advisors surveyed said technology and data access are the main areas they expect to invest in. Technology, they believe, will propel growth.

Matthew Slaney, CFA, from FinArc, LLC in Needham, Massachusetts, says that his firm is planning to increase its budget for technology in the near future in order to continue to grow its assets. “The effective technologies such as CRM, portfolio management applications and analysis tools will allow investment advisors to support more clients and reach out to more prospects with the same staff structure,” Slaney says.

Well placed and properly utilized, technology can help advisors’ practices run more effectively and will improve their bottom line in the long run. Advisors’ businesses revolve around a core of technology services and applications: client relationship management, document management, reconciliation, portfolio management, performance reporting, portfolio monitoring, trading and rebalancing, billing and compliance. Advisors should assess technology through what will enhance effectiveness and efficiency. Is it an investment in scalability?

Driver No. 2: Strategic planning.

Advisors should ensure that their strategic plan includes their growth goals as well as plans for how they will specifically grow their firm. Determining where they expect their growth to come from–new or existing clients, for instance–will partially determine how they market their firm and what investment decisions they make. A well thought-out plan enables advisors to make the most effective use of resources. It also keeps them honest–they’re setting goals and then constantly measuring their progress against those goals.

Driver No. 3: Benchmarking

By utilizing available benchmarking data–like that Rydex|SGI AdvisorBenchmarking and other firms provide–advisors will be able to see how their growth projections stack up to the industry and make sure that their growth assumptions are realistic. enables advisors to view a snapshot of their practice vs. those of their peers–quickly and at their convenience. When benchmarking, they should be sure to compare key metrics (profitability and productivity ratios, for instance) with those of firms of a similar size and with industry averages.

The 2010 Rydex|SGI AdvisorBenchmarking survey is now open. Visit to take the 20-minute survey now and benchmark your practice against your peers.

Maya Ivanova is a market research manager with Rydex|SGI AdvisorBenchmarking She can be reached at [email protected].

Rydex|SGI AdvisorBenchmarking is a research and analysis center focused on the registered investment advisor (RIA) marketplace. Preliminary study results quoted in this article are based on the 308 RIA firms that took the online survey in March-May 2010. The service is aimed at helping advisors grow and enhance their firms by comparing how their businesses fare against other advisors. Advisors also learn best practices of the most successful advisors in the business.

AdvisorBenchmarking is an affiliate of Rydex Investments. The analysis on Rydex|SGI is based on the number of completed surveys and reflects only information from those surveys. This information is intended to be general in nature, and these overviews are no substitute for professional, legal or consulting advice. This information should not be construed as advice from Rydex Investments or any of its affiliates.


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