Fastest Growing Advisory Practices Focus on Client Interface

New data suggests that financial advisers focused more on client management than on investment management see much stronger asset growth and retention. 

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.

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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

DTCC to Launch New Fiduciary Insurance Profile Service

The new service, known as Insurance Profile, facilitates compliance with the Department of Labor fiduciary rule during the sale and service of annuities.

Depository Trust & Clearing Corporation (DTCC) is seeking regulatory approval for a new Insurance Profile solution that will facilitate annuity industry compliance with the U.S. Department of Labor (DOL) fiduciary rule.

According to DTCC, the Insurance Profile service provides carriers and distributors with a centralized, automated and standardized method to satisfy disclosure requirements under the significant disclosure and conflict of interest reforms.  

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“Under the new DOL rule, any financial adviser receiving compensation for providing investment advice that is directed to a particular plan sponsor, plan participant or individual retirement account (IRA) owner will generally be deemed a fiduciary,” the firm says. “Fiduciaries are required to act in their clients’ best interests, while providing new levels of transparency including their qualifications, recommended investments, fees and costs, material conflicts of interest and compensation—data that is largely handled in operational silos and via manual processes across market participant firms today.”

To address this hurdle, the DTCC solution supports the exchange of data between insurance carriers and distributors for the on-going reporting of fees, expenses and commissions schedules to facilitate both “on demand” disclosures and website disclosures.

Once launched, distributors will be able to leverage Insurance Profile to access expense data at the contract, feature/rider and fund (subaccount) levels from a secure, centralized hub, eliminating the need to search and pull information across individual carrier partners, DTCC says. Carriers, or designated vendors acting on behalf of carriers, will be able to submit and maintain the required disclosure data online, leveraging an easy-to-use Insurance Profile interface. All data will be communicated via industry-standard ACORD XML and EDI messages.

“By leveraging a central, online data source of comprehensive and standardized annuity information, market participants will be able to increase transparency into annuity expenses and commission schedules, while ensuring access to data that is critical to the adherence of Department of Labor fiduciary disclosure requirements,” says Ann Bergin, managing director and head of DTCC Wealth Management Services. “Increasing automation in this area will reduce the risks and costs associated with manually processing this data, while eliminating the support and maintenance costs and resources associated with proprietary feeds and databases.”

Insurance Profile will be offered by DTCC’s National Securities Clearing Corporation (NSCC) subsidiary. More information is available at www.dtcc.com.   

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