Does the independent advisory industry really need another study? Like most of you, I suspect, I would have thought it probably didn’t. Then I got around to reading “The Future of Practice Management,” a survey of financial advisors by the FPA’s Research and Practice Institute released in December 2013. Conducted in conjunction with Julie Littlechild’s Advisor Impact, the Institute’s inaugural effort is an online survey that attracted some 1,954 senior “advisors” (and 422 junior advisors and staff), making it, to my knowledge, the largest study in the independent advisory world—and therefore, probably offering the most valid results.
What’s more, this study avoids many factors that often skew advisory research by focusing on practice management information, thereby avoiding incentives for advisors to make their firms look bigger, more successful or more profitable than they really are. Consequently, the results obtained by the Institute probably represent the most comprehensive insight to date into how independent advisory firms are run, puncturing more than a few practice management myths and offering valuable guidelines for how advisory businesses can be run better, and how institutions and companies that support independent advisors can better help them do it.
Let me point out at the start that despite its title, this report doesn’t tell us much about the future of practice management. Even the questions that ask advisors to predict what they will do in five or 10 years only offer insight into advisors’ attitudes today about the future. Moreover, the survey is based on Advisor Impact’s rather rigid management model that has owner-advisors curiously defining their firms’ business model before they decide who their ideal clients will be or what services they’ll need.
At the same time, the survey offers relatively little information about whom its 1,954 advisor participants are, making it difficult for readers to determine how well the results might apply to them. For instance, this survey by the Financial Planning Association refers to participants as “advisors” rather than “financial planners,” begging the question of just who these advisors might be. It does tell us that 81% of the participants are male and 19% female; that 38% have less than 10 years’ experience as advisors, leaving 62% with more than 10 years as advisors (45% had more than 15 years and 31% more than 20 years).
What Your Peers Are Reading
It also tells us that 51% are under 50 years of age, with 49% over 50 (including 17% over 60); that 48% have less than $50 million in client AUM and 68% have less than $100 million, while 32% have over $100 million and 13% have over $250 million; and that client asset minimums are quite high, with 33% under $250,000, 28% between $250,000 and $500,000, and 40% over $500,000. (Of course, no one is checking to see what percentage of clients are actually meeting these “minimums.”) But the survey gives us no information about the designations, registrations and licenses of the participants, nor about their affiliations with broker-dealers or custodians, or their method of compensation. (As of this writing, neither the FPA nor Advisor Impact divulged this information, either.)
We do get some insight—as well as some surprises—into what kind of advisors are represented in the survey by what services they offer. The fact that 86% offer financial planning, 89% offer retirement planning, 80% offer portfolio management, 79% offer college planning and 65% offer estate planning strongly suggests that a large majority are CFPs. But with 77% offering life insurance and 63% offering health, disability or long-term care insurance, I’d suspect that a good portion are also insurance agents, with stockbrokers making up a relatively low percentage of participants. I don’t know what to make of the fact that 30% offer trust services, while only 18% offer tax work.
With that rather murky view of who the participants are, here are the highlights of the issues that their survey answers raise:
Business Planning. Only 50% of the participants have a formal, written business plan. Yes, you read that right: half. The strong indication that most of the participants are financial planners makes one wonder, doesn’t it? However, some 97% review their performance against a plan or goals regularly. This suggests that virtually all advisory firms have goals, even if they don’t put them into a formal plan, and at least raises questions about the value of the time and effort spent on those plans.