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Research Reveals Which Factors Shape Successful Financial Advisory Businesses

Terry Mullen
May 1, 2017

Each year, Investment News conducts a financial performance study examining the success factors of leading financial firms. Top performers don't reach the top by accident; they are driven and focused. The past few "Financial Performance Study" reports published by Investment News reveal several factors that consistently shape successful advisory practices. Whether you're a solo adviser, an owner of a small firm, or an executive at an enterprise organization, adopting the following strategies -- and making them a habit -- could take your firm to new heights.

Selectivity and Service

It's a given that most financial advisory firms focus on providing excellent customer service. However, firms at the top tend to be much more selective about which clients they provide their services to.

Top performers were more likely to "choose their clients." This boils down to specialization and an understanding about the firm's ideal client. Whatever the niche may be, top performers understand exactly what type of client they serve and in what industry. They focus on attracting quality clients that fit their definition of an ideal client.

What's more, top performers are more likely than others to have processes in place for both client referrals and client performance monitoring. For example, top performers in 2014 were more likely than others to have client minimums in place and evaluate their clients for profitability each year.

In 2016, the most profitable firms generated $10,600 in revenue per client (36 percent higher than the rest of the firms studied). These firms focused on building relationships with the highest quality clients and could charge a premium for their services.

Takeaways: Determine who your ideal clients are and focus on attracting more of them. This exercise may bring you clarity about your niche. Define your areas of specialization along with any client qualifications, so that you can become more selective. Develop a client referral process and measure your clients for profitability each year.

An Eye for Growth

Top performers consistently focus on growth. It's all about revenue and profit, which often means growing the client base. Top performing firms achieve this via acquisitions, formalizing referral relationships, and lead management.

What else is fueling their growth? Several factors come into play here including business development, recruiting top-notch talent, technology integrations, managing expenses, and increasing the productivity of their income generators. Top performers are results-oriented and tend to focus on both growing revenue and trimming expenses.

While the top performers are meeting or exceeding their growth targets, there's a lot of room for improvement. For example:

  • 54% of firms studied in 2016 failed to meet their growth targets. Less than a quarter of all firms studied set business development goals.
  • Only 1 out of 5 leads became a client. Most firms (62%) don't even track their leads, so they don't know where their leads are coming from, much less how well they convert.

Takeaways: Track you leads. Optimize your lead management processes to attract and convert quality leads. Recruit and retain the best advisors and help them to work more productively. Finally, keep an eye on the other side of the ledger -- expenses -- to ensure that not only your revenues grow, but your profits as well.

Productivity Starts at the Top

Owners and executives at top performing firms tend to be among the most productive advisers in their firm. They lead by example, taking on more work than their peers. Investment News found that many top firms led by highly productive advisors have a large support staff, but just a few advisors.

Though focused, productive, and results-oriented, practicing owners and executives must juggle multiple responsibilities. They risk becoming stretched too thinly while the firm is vulnerable to reaching capacity.

Successful organizations led by practicing advisors tend to have sufficient talent and support staff to ensure productivity and growth.

Takeaways: Lead by example, but without sacrificing growth. This may mean hiring additional advisors to increase your firm's capacity or spending more time on business development.

Where to Go from Here

Research shows that the most successful advisory practices tend to be selective, growth- and results-oriented, and led by strong performers. They know what they want to achieve, who they want to serve, and how to achieve it. They measure and monitor key performance indicators -- including client profitability.

These success factors are common across practices of all sizes. Whether you're a solo advisor or leading an enterprise financial advisory firm, consider adding these ideas into your own practice. And make them a habit.

Click here for more articles related to: Practice Management

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