While investment advisory firms are optimistic about their business prospects — with close to 80% planning to expand their staffs in the next year — cybersecurity, a potential market crisis, regulations and fee compression top their list of rising concerns, according to a just-released report by the Investment Adviser Association and Cerulli Associates.
The 2018 Executive Outlook Survey, the second in a series of annual surveys conducted by IAA and Cerulli that measures and tracks business sentiment among IAA member advisory firm executives, found that nearly two-thirds of respondents (64.7%) plan to grow their headcounts by up to 10% over the next year, while 14.7% plan to increase their staffs by more than 10%.
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Developing the next generation of talent was billed by 97.2% of RIA executives as the most important initiative for ensuring firm profitability — with 54.3% calling it “very important” and another 42.9% calling it “moderately important.”
“Many firms believe hiring younger employees is an advantageous way to engage the heirs of current clients (i.e., retain family assets),” Cerulli states in the report. “However, more recognize that it’s a critical component to business continuity planning regardless of whether the junior talent or existing senior partners are currently slated to succeed today’s leaders.”
Indeed, Cerulli notes that it expects mergers and acquisitions to “play an increasingly important role” in many RIAs’ growth strategies.
With nearly half of all RIA advisors within 15 years of retirement, Cerulli states, “one in five expect to sell their practice to an external party and a similar amount are ‘unsure of their succession plan.’”
Succession planning, Cerulli states, “is one of the largest challenges facing the entire industry,” so advisory firms with growth goals will likely turn more and more to M&A.
Ultimately, Cerulli continues, “many [RIAs] may find themselves being more comfortable selling to another RIA, versus a bank or large BD.”
Other priorities include increasing scale (91.4%); improving the firm’s service model (85.8%); reducing costs (80%); and compensation analysis and adjustments (60%).