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Advisors’ Priority List—How They Get It All Done

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Investment advisors often lament that they live in a world that’s always on, where there are no boundaries on time. They are right to wonder if they are spending their days in ways that best serve their clients. Is it better to try to be all things to all people, for example, or play to your professional strengths, even at the risk of paying less attention to some things that may matter to some clients? While the latest Rydex|SGI AdvisorBenchmaking report doesn’t answer that question, it shows the many demands on advisors’ time and how they manage it as well as the mix of services they offer.

The 2011 report revealed, for example, that advisors surveyed spend up to half their time on just three activities—portfolio management, client meetings and acquisition, and client service. However, the largest shifts in how advisors spend their time—a trend over the past three years—suggests that the industry may have settled into a “new normal,” with a strong emphasis on relationship basics, including spending more time on client communication and client relationship management. The single biggest change seen in 2011 was a shift toward more time spent on portfolio management, which jumped from 10% in 2010 to 17% in 2011. Challenging markets appear to be taking up more of advisors’ attention as they develop investment strategies focused on meeting clients’ objectives, in spite of volatile market conditions.

The areas that appear to be suffering from a lack of focus are those that require the advisor to work “on” the business: e.g., business strategy and administration. The one increase in this area was time spent on marketing, which is important given that advisors’ also place a lot of emphasis on asset growth. In a breakdown of the study group, almost 40% were small RIA firms (those with less than $50 million in assets), up slightly from the prior year, but down from the years immediately preceding a difficult 2008.

What was surprising in this year’s data was the decline in time spent on compliance—despite the fact that advisors also said that they view the compliance burden as a threat to the business. The decrease in time spent on compliance, however, corresponds to a sharp increase in outsourcing in this area, suggesting that advisors have found an effective way to manage their compliance challenges while freeing up their time for other important activities.

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The service offering of most RIA firms has not changed significantly in the last two years. The four cornerstones of advisory firms (investment advice, retirement planning, investment management and financial planning) appear to be relatively stable, and a second tier of services includes insurance, estate and charitable giving planning—although anywhere from 14% to 21% of advisors refer the business out. The emphasis on making certain services available shows that, regardless of whether they are performed internally our outsourced, RIA firms do prioritize planning as part of the overall relationship, and as a driver of investment strategy and implementation.

The service model also looks to remain stable for the foreseeable future: Across a wide range of services, the “plan to offer” category did not break out of the single digits for any type of service (see chart below). The services we are likely to see RIAs offer in the future are investment services to other advisors and charitable giving planning, each of which 6% of advisors plan to offer. As a continuing influx of products makes portfolio construction more complex and time consuming, portfolio construction may be decreasingly productive—and even unrealistic—for the advisor to efficiently manage alone. Specializing in investment management to other advisors could provide a competitive advantage. Firms that delegate at least some investment management to subadvisors may be able to improve their overall business profile.

The latest survey also showed a stable interest on the part of advisors in acquiring a professional designation, which many see as an avenue to broadening their business or deepening their skill in a particular area. Interestingly, the number of advisors who said they were “working toward” the CFP designation was 14%–three to seven times higher than for other designations. This result is not surprising given the emphasis on planning in the RIA service model. From this data, one could argue that the “planning” services being offered by advisors are becoming more robust, as certification is designed and governed by an independent standard-setting body.

Serving clients, growing the business, improving your skills or offerings—the next time you wonder how you’ll get it all done, read a few of the profiles of Barron’s list of America’s Top Advisors. There, you’ll find a quantitative type who analyzes clients’ cash flows, an early adopter of ETFs in financial plans, a disciplined asset allocator, a dispenser of financial advice on a radio show, a stock-option expert, a male-female partnership, a coach for clients entering retirement, even a stickler for responding to client needs. What stands out is not the success they’ve achieved, but how they’ve decided to run their business. They discovered their talent, aimed to be the best at what motivated them and offered that expertise to others. The clients of these advisors weren’t concerned about AUM, time spent managing investments or outsourcing a service. What appeared to attract them, and their business, was their advisors’ drive, confidence and zeal—timeless qualities for any advisory relationship.