servicing strategies | PLANADVISER November/December 2016

Cultivating Your Practice

By John Manganaro | November/December 2016

Sweet observes there are many outsourced resources available, and, given the regulatory environment, “it is clearly time for advisers to reconsider how investment management fits into their day-to-day job description.”

Accomplishing More With Less
Data published by Schwab Advisor Services in its most recent “Independent Advisor Outlook Study [IAOS]” underscores Sweet’s comments. The findings show there can be little doubt that advisory practices have become leaner since 2006. For example, average assets under advisement (AUA) per independent firm started the decade at $251 million, growing to $339 million this year. Yet, staff size is down significantly, dropping from an average of 27 employees per firm to 17 this year alone.

The numbers offer a stark reminder that simply adding staff does not mean growth will occur—or that dropping staff will reduce effectiveness.

“Over the past decade, the advisers in the ‘IAO Study’ have built lean businesses that have achieved growth and scale against a backdrop of volatility, market highs and lows, and forces of change ranging from the regulatory environment to technology,” observes Bernie Clark, an executive vice president and head of Schwab Advisor Services in Phoenix, Arizona. “They have done this with a constant focus on their clients, while embracing change and seizing opportunities.”

Given the reduction in staff size, it is reasonable to assume that the increased adoption of a variety of scale-building technologies in both the investment and client relationship management (CRM) portions of the business have paid off significantly for many firms. Further, according to Schwab’s research, advisers are “no longer spending the majority of their time working in their physical offices, and, as they look ahead, this trend becomes more pronounced. Where once the advisers’ time was focused mainly on portfolio management and asset allocation, this is now changing.”

Interestingly, it appears that some industry practices are not going away, despite other areas of major reformation. For example, most new clients are still acquired through referrals, as was the case in the last decade, and Charles Schwab says there is no indication in the data that this will change. Thus, any firms looking to actually add sales-focused advisers will do well to consider, as a powerful criterion, a prospect’s ability to network and drive referrals.