strat man
CHAPTER 1
THE FINANCIAL ADVISORY BUSINESS
I. SIGNIFICANCE
a. A slower rate of organic growth caused by competition and market returns
b. Clients that are more demanding
c. Difficulty in recruiting, retaining, and rewarding people
d. An aversion to managing anything except their clients
e. The pressure of margin squeeze
f. The shrinkage of time
II. HIGHLIGHTS
Slower Rate of Growth
The late 1990s created an illusion for a lot of people who invested in the markets, including financial advisers, who witnessed extraordinary rates of revenue growth tied to investable assets. This bonanza made many of them feel brilliant, especially those who had the wisdom to convert to a fee-based or fee-only model. However, the market correction at the turn of the century and the modest returns projected for the foreseeable future have made revenue growth— at least organic growth—more of a challenge. Several conditions are conspiring against advisers who still hope for rapid revenue growth:
1. Most experts predict long-term market rates of return of below 8 percent.
2. Inflation remains at very low rates (although that could change).
3. There is no longer an Internet bubble to give an artificial lift to the markets—and consequently to fees.
4. Many advisers have already reached their capacity in terms of the number of new clients they can add.
5. More pressure is likely on pricing, with new competition and more demanding clients.
6. If a firm’s service offering is one-dimensional, justifying higher fees is hard.
7. Many advisers lack a well-developed, systematic process for marketing.
The good news, of course, is that challenge breeds opportunity. There are things advisers can do, such as institutionalizing their approach to business development and implementing a more rigid client-acceptance process to maintain fee discipline. But it is impossible— and imprudent—to ignore the weight the marketplace can exert on top-line performance and on the rate of
THE FINANCIAL ADVISORY BUSINESS
I. SIGNIFICANCE
a. A slower rate of organic growth caused by competition and market returns
b. Clients that are more demanding
c. Difficulty in recruiting, retaining, and rewarding people
d. An aversion to managing anything except their clients
e. The pressure of margin squeeze
f. The shrinkage of time
II. HIGHLIGHTS
Slower Rate of Growth
The late 1990s created an illusion for a lot of people who invested in the markets, including financial advisers, who witnessed extraordinary rates of revenue growth tied to investable assets. This bonanza made many of them feel brilliant, especially those who had the wisdom to convert to a fee-based or fee-only model. However, the market correction at the turn of the century and the modest returns projected for the foreseeable future have made revenue growth— at least organic growth—more of a challenge. Several conditions are conspiring against advisers who still hope for rapid revenue growth:
1. Most experts predict long-term market rates of return of below 8 percent.
2. Inflation remains at very low rates (although that could change).
3. There is no longer an Internet bubble to give an artificial lift to the markets—and consequently to fees.
4. Many advisers have already reached their capacity in terms of the number of new clients they can add.
5. More pressure is likely on pricing, with new competition and more demanding clients.
6. If a firm’s service offering is one-dimensional, justifying higher fees is hard.
7. Many advisers lack a well-developed, systematic process for marketing.
The good news, of course, is that challenge breeds opportunity. There are things advisers can do, such as institutionalizing their approach to business development and implementing a more rigid client-acceptance process to maintain fee discipline. But it is impossible— and imprudent—to ignore the weight the marketplace can exert on top-line performance and on the rate of