The explosive growth and record profitability that advisory firms experienced in 2013 and 2014 have reverted, largely in part due to when U.S. securities market appreciation fell from more than 30% growth in 2013 to nearly zero in 2015.
According to The FA Insight Study of Advisory Firms: Growth By Design, an annual research report that’s now published by TD Ameritrade Institutional, many firms were unprepared to weather the dramatic change. The results of the study serves as a “reminder that proactive planning must replace relying on markets to generate growth.”
The pace of asset growth last year slowed by 56%, and firm revenue growth slowed to half of its 2014 rate, while median overhead expenses per client rose 31%, according to the study.
According to the study, annual growth in assets under management for the typical firm was just 4.7% in 2015, less than half of what was achieved in 2014. As a result, revenue growth fell from 14.4% to 7.3% during the same period.
Across the industry, revenue growth was cut in half last year, with the typical firm expecting to close 2016 with even slower growth.
“After 2014′s record profitability and explosive growth, advisors now must be more disciplined – and that’s not a bad thing,” Vanessa Oligino, director of Business Performance Solutions at TD Ameritrade Institutional, said in a statement. “Firms need growth plans that go deeper than just riding the rising market tide if they expect their success to carry through different cycles.”
In fact, the study found that advisory firms with solid growth plans and strong execution fared significantly better.
Among “standout” firms, which FA Insight defines as those in the top quartile measured by revenue growth and income generation, annual revenue grew roughly two to three times faster than their peers in 2015. Standout firms converted 40% to 50% more owner income per dollar of revenue, according to the study.