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Top Wealth Managers Quarterly Pulse Part 2: Recruiting Picks Up

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In our special report,“Top Wealth Managers Quarterly Pulse Part 1: Healthy Again,” Philip Palaveev and Jonathan McQuade report on the overall results for the fourth quarter of 2010 and the growth trends evident in wealth management firms. In Part 2, they report on growth in new clients, how firms are achieving this and the corresponding boost in recruiting. For one Top Wealth Manager’s view on training new advisors, please see “What’s Your Plan for Training New Financial Planners?”—Kate McBride

While large firms have an advantage, all sizes of registered investment advisor (RIA) firms have done very well in terms of productivity. The ratios we are observing today are at their highest levels since 2007 and perhaps indicate the need to start staffing firms more aggressively. Historically, ratios of over $750,000 ($500,000 for smaller firms) in revenue per professional and over $250,000 in revenue per staff have indicated that the firm may be close to capacity and may need to hire. By those standards, it is time for all firms to review their staffing needs.

Some recruiting is already taking place: On average, firms added one more position to their staff in 2010. That position was most likely a professional, with operations positions closely behind. The largest firms added one of each of those position types in 2010.  Medium-sized firms focused first on adding professionals, hiring, on average, 0.7 full-time employees (FTEs), and second on adding operations staff,  hiring, on average, 0.4 full-time employees.

The Link Between Staff Retention and New Clients

Together with renewed staff recruiting, firms are also investing heavily in staff retention. The typical wealth management firm offers a medical, dental, 401(k) and continuing education plan to its employees, with the typical employer covering 100% of the employee premiums and 50% for their family. Retention is the foundation for growth for wealth managers and staff retention helps client retention by preserving the organizational knowledge of clients and minimizing the disruption of adding new people to the service team. After all, more than half of a firm’s new clients come from referrals from existing clients. There is simply no other source of new revenue that can even remotely rival the ability of existing clients to bring new prospects to the firm.

Beyond client referrals, we see firms engaging in variety of marketing strategies, including referrals from CPAs and attorneys and proactive strategies such as advertising or web presence. The “other” category which got the second largest share of the prospects was not defined in the survey.

Technology Investment

Finally, the positive outlook on 2011 and ambitious growth expectations are also evident in the technology and marketing budgets of wealth mangers. The typical large firm is planning to spend $166,000 on technology acquisitions in 2011, with mid-sized firms spending $170,000 and small firms spending $49,000. Technology budgets are 1.5% of revenue for largest firms and 3.6% and 3.0% correspondingly for medium-sized firms and small firms.

Marketing Investment

The largest firms have a marketing budget of $172,000 compared to $88,000 for mid-sized firms and $35,000 for the small firms. As percent of total revenue, the largest firms are investing 1.6% of their revenue in marketing, compared to 1.9% for medium firms and 2.1% for small firms.

Priorities for 2011

One lesson we learned in the recession of 2001 and 2002 is that when the growth comes back to the market, it comes like a bursting dam rather than a slow and steady stream. After a year of recovery in 2003 with some good growth numbers, we saw tremendous growth throughout the industry in 2004 with average AUM growth being over 45%. We are not in the business of projections and forecasts but we have to note that if this pattern repeats, we may see dramatic growth in 2011. The reason we want to highlight that possibility is that in 2004, while all firms benefited from the recovery, there were those that fully captured the opportunity and there were some who let it slip away. The difference was whether the firm had the staff and other resources to grow and capture the new client opportunity.

In other words, we believe that that the fourth quarter statistics give a lot of reasons for optimism and enthusiasm and that it is time to grow and invest aggressively. It is time to hire new people and prepare the firm for a growth spurt because when opportunity knocks on the door, some open it and some complain about the noise. The difference is having the staff and the operations capacity to grow.

Read: Top Wealth Managers Quarterly Pulse Part 1: Healthy Again

See the quarterly rankings of the Largest 100 Top Wealth Managers.


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