Many advisors neglect growth plans News added by Benefits Pro on August 6, 2014

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Joined: September 07, 2011

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By Marlene Y. Satter

Financial advisory firms are growing, with almost 75 percent reporting “significant” advances in size in a new study by FA Insight. However, only a third of firms have achieved “sustainable growth” that hasn’t contributed more than its share of growing pains.

According to the study, growth by design is the most desired method of achieving that sustainable growth. And that’s not as easy as 2013’s numbers may imply.

The study reported that 2013 was “(b)y any measure ... the best on record for the six-year tenure of annual FA Insight studies.”

Client bases expanded by 6.7 percent. Annual increases in assets under management and revenues were the second highest since the studies launched. Not only that, revenue per professional has reached a new high in productivity at 32 percent.

A favorable market, costs that didn’t explode and increased productivity meant that profitability also hit a record. Typical operating profit margins were nearly double what they were in 2009, at 22 percent.

However, not all firms participating in the survey had it so good. Although 85 percent of firms reported having a strategic plan, only 17 percent said that their plan was key to their recent growth. More than half of plans were short on details for how to meet their goals, and even fewer firms were able to successfully motivate employees to keep their eyes on the road ahead.

Detailed interim steps that involve a client-first approach, proactive marketing and business development and operational efficiency — as well as a willingness to adapt actions to changing circumstances — all played a major role in the rise of the more successful firms, and were key to developing sustainable growth that wouldn’t stretch a firm beyond its limits.

The study warned that “new modes of service delivery, cooling security markets, and human capital constraints represent just a few of the many potentially threatening factors poised to test advisory firms.”

Under such challenges, firms could lose their grip on what progress they’ve experienced, and start to feel the strain of “growth at any cost.”

Instead, it said, “Complacency is not an option for any firm. ... Only growth by design will produce managed sustainable growth that minimizes stress on a firm’s infrastructure and builds lasting enterprise value.”

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