Earlier this month, Matt Crow and I attended the BNY Mellon / Pershing RIA Symposium in San Francisco. The conference was well attended, and the presentations were excellent despite the constant drone of fair wage protesting outside the hotel venue. For this post, we’ve elected to summarize some of these presentations and their potential implications for your business.

Compensation and Staffing – Key Trends and Best Practices for Advisory Firms

by Matthew Sirinides, Senior Manager, Research & Data, InvestmentNews

InvestmentNews conducts this longest-running industry benchmarking study in conjunction with its Study of Pricing and Profitability as a survey to 385 independent advisory firms, which supply compensation, AUM, client, fee, and profitability data on an annual basis.  As an appraisal firm that often has to normalize RIA owner compensation for valuation purposes, we’re naturally one of its subscribers.  In this particular presentation, Mr. Sirinides summarized some of their key findings:

1. The industry continues to perform well (AUM and revenue up ~20% and 12%, respectively, over the last year), but much of this is attributable to market gains over organic growth trends.
2. Lead Advisors reported the highest average compensation increase at ~11% for the second year in a row. It’s unclear if this is what the crowd outside the building was protesting, but LAs have certainly done well in recent years.
3. The industry’s total headcount continues to grow, and roughly one-third of the firms surveyed hired for a newly created position.

Basically, the industry and its advisors did very well last year.  We agree, but think you should be mindful of what’s driving a lot of this growth – nearly ten years of market appreciation, marking one of the longest and most aggressive bull runs in our stock market’s history.  This advance has more than offset other adverse trends in pricing, asset flows, and organic growth patterns that we’ve been reading and writing about over this period.  Revenue growth lagging increases in AUM suggests strains in fee pricing.  Compounding lower fees with a market teetering on the brink of correction could mean significantly lower levels of ongoing revenue.  Perhaps this is what has spooked the market for some RIA stocks in recent months.  We would advise you to assess your sources of revenue growth (market gains versus new business development) before blindly staffing up in lockstep with AUM additions.

Brand New Visibility: Thinking Differently About Your Brand

by Megan Carpenter, CEO, FiComm Partners

Megan Carpenter’s presentation was also very informative since a strong brand name is often the most valuable asset not listed on a firm’s balance sheet.  Ms. Carpenter noted that brand value and related reputational assets account for more than 30% of the S&P 500’s market capitalization according to The Economist, but advisory firms spend less than 2% of top-line revenue on marketing expenditures (per IN’s study).  This disconnect probably explains why most RIAs are partnerships or sole practitioners rather than larger corporations with substantial enterprise value.

If clients identify with your firm’s brand more than your first or last name, that’s probably a boon for your company’s value.

FiComm Partners contends that one way to build lasting enterprise value is through a concept known as scalable marketing, which allows you to “be there without being there,” so your firm can reach new people you otherwise wouldn’t.  Basically, establishing brand infrastructure with the right content creation and distribution allows the current owner/officers to step away from the business as the company’s own reputation and mobile outreach market themselves over time.  This evolution becomes increasingly important as existing owners look to sell their business.  If you can’t step away from the business (without the risk of substantial client loss or investing acumen), then your company probably does not have much transactional value to a prospective buyer.  If clients identify with your firm’s brand more than your first or last name, that’s probably a boon for your company’s value (though maybe not your ego).  We always recommend a gradual process of transitioning clients and management responsibilities, so you have something to sell when you decide to hang it up.

The Gen-Savvy Financial Advisor

by Cam Marston, CEO of Generational Insights

When I saw this presentation on the conference’s itinerary, I braced myself for two hours of millennial bashing like every other forum I’ve seen on this topic.  Sure, there was some of that, but this session was primarily geared towards how advisors can most effectively communicate with clients across multiple generations.  It’s been well-documented that Baby Boomers and GenXers have a hard time relating to Millennials and vice versa, so this topic was certainly in high demand.  Mr. Marston approaches this dilemma by figuring out what seems to matter the most to each generation in selecting an advisor.  Baby Boomers and older GenXers are drawn to track records, tenure in the marketplace, firm history, and brand recognition.  Millennials and younger GenXers are more interested in how things will affect them personally and how you’ll impact their future livelihood.

Given these discrepancies, many advisors have difficulty keeping the family relationship when it transfers to the next generation.  Mr. Marston contends that this issue could be avoided by changing the message you have with different generations.  Younger clients probably aren’t going to want to hear about you or the firm’s history (even with your family), but rather what you can do to meet their financial needs.  You also have to change your marketing tactics as Millennials tend to find new advisors through social media and search engines as opposed to word-of-mouth referrals.  Such a drastic change is not easy, but you can rest assured that your competitors are struggling with this as well.  Adapting to this change now could really pay dividends when my generation finally moves out of our parent’s basement and starts saving for the future.

We hope to see you at next year’s symposium.  Special thanks to BNY Mellon / Pershing for putting on a great conference!