Fastest Growing Advisory Practices Focus on Client Interface

A new research report published by FP Transitions and SEI Advisor Network suggests advisers willing to double down on carefully managing the client experience can generate serious return for their own business.

According to data highlighted by the firms, putting in place just a handful of next-generation client management best practices can increase the value of an advisory business by more than $1 million over a 10-year period.

The data comes from a new study conducted by FP Transitions in partnership with SEI—an effort that looked back over 10 years of data gathered from more than 8,000 advisory practices. On average, firms that can be categorized as “client managers” add twice as much in assets under management (AUM), about $14.5 million annually, when compared to firms that fall into the “investment managers” category, which add about $7.2 million per year.

The report defines “investment managers” as advisers who self-report focusing much or most of their time on the investment process, and “client managers” are those who delegate the investment management function to a third party to concentrate instead on gathering and building relationships.

“Despite the similarities found between the two practice models, including number of employees, how they are led by advisers of similar age, experience, and number of years as independent advisers and serve a comparable client demographic, the greatest disparity between the two models lies in advisers’ activities and how they devote their time,” the research explains.

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Investment manager advisers report that they spend more than one-third of their time (37%) on investment management activities like research and client portfolio management, while the client-focused group spends less than 3% of their time on these activities, according to the data from FP Transitions.

“Furthermore, client managers spend more than half their time on client acquisition and client management compared with investment managers spending just 30% of their time on the same activities,” the research shows. “With 34% of time saved and not spent on investment management activities, client managers spend nearly twice as much time as investment managers on client meetings—37% and 20%, respectively—and prospecting new clients.”

The FP Transitions data also reveals that the type of activity on which financial advisers focus affects their client growth and in turn, their asset growth.

“Although the investment managers surveyed had a higher average AUM per client ($468,960) than client managers surveyed ($321,817), client managers averaged 120 more clients (285 clients) than investment managers (165 clients),” the report says. “Advisers who focus on clients add 14 new clients per year on average for a total of $4.5 million in new assets. On the other hand, advisers that focus on investment management activities gain only four new clients per year on average for a total of $1.9 million in new assets.”

When looking at the new assets gained from existing clients, in addition to that of new clients and portfolio growth, the total asset growth rate in AUM was 18% for client managers versus 11% for investment managers.

Additional findings can be downloaded here.