Advisory Organic Growth Comes From ‘Will,’ ‘Skill,’ per Study

Most gains in the wealth management industry over the past decade are not due to organic growth but to market performance, according to a recently published report by the analytics companies PriceMetrix Inc. and Crisil Coalition Greenwich, both owned by Crisil Ltd. Using proprietary data, including client holdings and transaction information from more than 80,000 advisory practices, the report, “Growing AUM in Advisor Practices: The Will and the Skill,” estimated that while North American wealth managers saw annual growth rates of about 10% of total assets under management over the past decade, only about 30% came from organic growth.

With this in mind, PriceMetrix and Crisil’s report focused on how financial advisers in wealth management are motivated to scale their practices and what distinguishes top-performing firms. Researchers studied three years of data involving mid-career advisers—those with 10 to 20 years’ experience who had $100 million to $200 million in assets under management as of 2022—and found that the top-quartile growers achieved 32% annual AUM growth—four times the annual growth rate of bottom-quartile growers.

“High-performing advisers have both the will and the skill needed to attract new clients and expand their practices,” said Kieran Bol, PriceMetrix’s director of research and analytics and a co-author of the report, in a statement. “High-performing wealth management firms know what makes their top performers successful and understand how to cultivate more.”

Aspects of Growth

Comparing top-quartile growers with bottom-quartile growers, the faster-growing practices had a higher percentages of fee assets (60%, compared with 51% for slowest growers) and a higher percentages of discretionary assets—those for which advisers act as portfolio managers (35% vs. 28%).

Client demographics mattered, with top-performing practices having higher average client assets than underperformers ($1.13 million vs. $980,000) and a lower percentage of clients with fewer than $500,000 (52% vs. 58%). Top performers also had a higher percentage of clients younger than 70 (65% vs. 57%), allowing them to benefit from clients who were still accumulating assets.

The report recommended that firms expand their compensation plans to reward not just advisers responsible for the increasing of a practice’s size, but those also spurring other facets of growth, such as increasing fee assets, discretionary assets, and attracting younger and richer clientele.

Teams and Planning

Echoing other studies about advisory teams outperforming solo practitioners, Crisil found that top-performing practices were more likely to work in teams than underperformers (65% vs. 59%). Firms leading in organic growth were 1.3 times more likely than underperforming firms to offer financial planning capabilities, which the report stated can “identify [clients’] current and future needs” and position the firm at “the center of … clients’ financial lives.”

The report concluded with suggestions that advisers define a clear target market, maintain a strong prospect pipeline and focus on clients’ most important financial problems. Teams were encouraged to build scalable service processes, strategize collaborative approaches and improve communication skills, which the report stated are “much more difficult to outsource” than investment management skills.

Each year, top-performing practices brought in 2.1 times more affluent clients (those with more than $1 million in assets) than the lowest-performing firms. But rather than divert time and resources away to attract new clients, the report’s conclusion stated that high-performing firms attract new business since they deliver “a consistently high-quality client experience.”