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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.