How the Fastest-Growing Advisory Firms Are Different, in 7 Charts

Slideshow June 01, 2023 at 11:43 AM Share & Print

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Some financial advisory firms are enjoying robust growth while others are struggling to increase assets under management, attract and retain top talent, build scalable processes and deliver personalized client experiences, according to a new report from Nitrogen, a growth platform for wealth management firms known until recently as Riskalyze.

Competition in the industry is fierce; many firms are concerned about losing clients to rivals. New advisors face major challenges, and significant numbers of them fail within three years.

One major challenge firms must navigate today is the trust gap between clients and financial advisors. Recent research found that only one-fifth of workers and retirees strongly agreed that they had been fairly treated by their financial professionals. This trust gap can lead to clients being fearful and is a major obstacle to overcoming financial literacy.

Nitrogen’s study examined hypergrowth and slow-growth firms to uncover the strategies and practices that contribute to their varying levels of success. For purposes of the report, hypergrowth firms are defined as those that grew by 21% or more in 2022, while slow-growth firms grew by 5% or less.

Nitrogen recruited more than 1,000 participants in the U.S. for the study via email, social media and in-product messages, receiving usable responses from 925 respondents. Of these, 76% were between 35 and 64 years old; 62% were financial advisors who owned their own firm; 36% worked within a firm; and 2% were firm executives.

See the gallery for a look at what the fastest growing firms are doing differently from the slowest growing firms, according to Nitrogen’s study.

(Image: Shutterstock)

1. Fast-growing firms are more worried about the global economy.

The biggest challenge by far for both slow-growth and hyper-growth firms is increasing regulation and compliance, trailed by changes in investors behavior and demographics, according to the study. But hypergrowth firms were far more likely to cite global economic uncertainty as the biggest challenge facing advisors over the next five years.

This may be due to demographics, Nitrogen suggests: Hypergrowth firm respondents tended to be younger, and thus less experienced with economic challenges.

2. They aren’t as worried about the competition.

Both hypergrowth and slow-growth firms identify increasing regulation and compliance as the biggest threat to growth across the profession. Faster-growing firms were less likely than their slow-growth counterparts to name competition from other firms or generational wealth transfer as the biggest threat.

3. When it comes to turning prospects to clients, they have different struggles.

Approximately 39% of slow-growth firms say their biggest obstacle to client conversion is lack of a scalable process, compared with about 27% of hypergrowth firms. Hypergrowth respondents were more likely to cite “mismatch of client needs and advisor expertise” as their biggest obstacle. This may be due to their younger age or the fact that many fast-growing firms are niche practices, Nitrogen suggests.

4. They’re more focused on lead generation.

Client satisfaction and retention is the most important factor contributing to firm growth for both hyper-growth and slow-growth firms. But hypergrowth firms were about 1.8 times as likely as their slow-growth counterparts to select lead generation as the most important factor in firm growth — possibly because once they have a lead, they are confident they can convert it, according to Nitrogen.

5. They’re more likely to cite financial planning as a growth driver.

Both hypergrowth and slow-growth firms ranked client engagement as having the greatest positive influence on business growth. Financial planning came in second.

6. They prioritize growth.

Perhaps unsurprisingly, seventy-eight percent of hypergrowth firms consider growth very or extremely important, compared with 43% of slow-growth firms.

7. They devote more time to growth initiatives.

Hypergrowth firms invest a significant amount of time each week in growing their firm, whereas slow-growth firms allocate comparatively less time. The majority of hypergrowth firms dedicate six hours or more per week to growth initiatives, while the majority of slow-growth firms spend five or fewer hours on firm growth.