Mega Teams Control Much of the Advisory Market

Mega teams are well situated to attract high-net-worth clients and large corporate retirement plans, explains Kenton Shirk, an associate director at Cerulli, leading to their relative dominance in the investment advice marketplace. One of many reasons for this is their size, Shirk says, which allows mega teams to offer a greater breadth and depth of expertise to serve the complex needs of the largest and most affluent clients.

But size isn’t the only factor leading to mega team success—as such teams comprise only about 14% of the total financial advice industry headcount, Cerulli says. Findings in the second quarter 2014 issue of The Cerulli Edge – Advisor Edition suggest mega teams are also advantaged by better technology, skilled support personnel and other back office resources that allow such teams to more easily acquire and absorb competitor firms. This, in turn, allows for more rapid growth in assets under advisement.

“Mega teams are ideally positioned to make acquisitions,” Shirk says. “Their financial success reduces the burden of financing, and the scale of their operational infrastructure makes it easier to service additional clients. As a growing number of advisers near retirement age, acquisitions will help mega teams grow at even faster rates.”

Cerulli finds advisory practices that increase adviser capacity can free their top-performing producers to spend more time on business development activities that drive revenue growth. These practices also operate at substantially greater levels of productivity than smaller firms, Cerulli says, as measured by AUM per headcount. Given that staffing expenses such as salaries, benefits and payroll taxes comprise the largest overhead costs, a higher level of productivity can greatly increase a practice’s operating profit.

Additionally, from a succession standpoint, large practices with high-net-worth clients are considered more appealing and typically garner high revenue multiples when assessing practice value and negotiating a merger or acquisition, Cerulli says.

The benefits of size can also generate a higher return on investment from human capital. Cerulli says successful, high-performing practices are more successful at recruiting talented advisers and staff who seek opportunities for long-term career growth. Large practices are a fertile training ground for junior advisers because they can offer a structured career path, allowing juniors to learn various aspects of the business over a period of time.

A summary and more information on how to purchase the full report are available here.