At Fusion Advisor Conference, Philip Palaveev Says, ‘Capture the Recovery’

Palaveev believes prospects are good for firms to selectively “add a partner,” or “buy or merge” on an opportunistic basis. He also spoke of an important “inflection point” regarding size of client assets.

While many firms are adding clients with more assets, there is a sweet spot for firms and a place where higher average assets under management (AUM) per client can diminish firms’ returns. A “$2 million client doesn’t require much more service than a $1 million client — but pays two times the fees” on the higher amount of assets, Palaveev notes; that’s very profitable. When you get to “$10 million in AUM per client, you don’t enjoy the best economics,” Palaveev cautions. Why? Aggressive pricing because of more competition for this larger average-size client, more services required, more management at the firms that serve these larger clients.

“Capture the recovery,” Palaveev implores — demonstrating with data from Moss Adams, where he had been a principal, that the firms that grew the fastest after the 2001-2003 downturn were the ones that “had people,” and had “capacity to jump on the opportunity” to bring in new clients and assets when times turned good again. The recovery in revenue for firms, Palaveev said, lags he actual recovery in markets.

Be ready.