The best practices of the best advisors – InvestmentNews workshop

Group of people standing by windows of conference room, socializing during coffee break

The seeds of destruction are sown in good times – and these are very good times,” declared Mark Tibergien, CEO of Pershing Advisor Services in his keynote session at the recently held Investment News Best Practices Workshop. Nearly 100 advisors from the best-managed firms as deemed by the Investment News research team gathered for a full day of sessions, networking and the chance to learn the best practices for business management of an RIA firm.

Tibergien was pointing to the benchmarking studies he has overseen, as well as his experience in a multi-decade career in the wealth management space as both a practice management consultant and a custodian executive.

His warning to advisors and the industry is that despite the robust bull markets we have been experiencing, advisor growth rates are slowing while compensation costs are increasing, putting pressures on advisor profitability and long-term sustainability.

According to the IN benchmarking study, advisor compensation growth rates are hitting an all-time high of 23%, yet overall firm growth has slowed to 5%, setting up an equation that does not bode well long term.

What the best firms are doing now in these interesting times is focusing on their human capital strategies, as well as their strategic investments in technology to right size their income statements.  “Advisory businesses only start to scale when profits grow faster than expenses,” Tibergien noted, providing a clear definition of how operating leverage can be achieved through a growth mindset and an operational excellence focus.

Putting on his consulting hat, Tibergien broke down a typical advisor’s P&L in broad categories to help advisors understand where they have the ability to move the needle in driving profitability.

According to Tibergien’s research, the typical advisory firm pays 40% of their revenues in direct expenses, which is mostly in the form of advisor salaries and compensation, leaving a gross profit of 60%. From this, subtract operational and administrative expenses, which are mostly back office and overhead ranging from 30-40%, leaving a profit margin of 20-30%. As compensation costs are increasing, the bottom line profitability of firms is now under siege.

What to do?

For many firms, operational and back office expenses are the place where they can make a difference, since advisor salaries are pretty much set by the market. Thus, from a strategic point of view, investing in technology has the most impact on improving profitability and getting to scale than just about any other single aspect of running an advisory business.

For example, the Black Diamond Wealth platform, with its seamless integrations with other applications such as CRM, financial planning and risk profiling, combined with its award winning portfolio management and client portal capabilities can be the key decision investment advisors can make to gain that critical ability to scale.

Along these lines, technology was again a key topic at the workshop in its importance to inorganic growth strategies, particularly for strategic buyers looking to scoop up the many advisory firms led by aging principals, looking to retire.

Industry panelists weighed in on the success factors for doing deals, and the key takeaway is that for an advisor to transition his/her clients, staff and basically their life’s work to another firm, the acquiring firm needs to have a better client experience than what they were able to provide on their own.

The idea that their clients will be well cared for is paramount in the decision process, so firms must have the latest client-facing technologies, along with a smooth onboarding process to capitalize on this demographic trend.

To learn more about what went on at the IN Best Practices Workshop, check out the #INBP2017 hashtag on Twitter.

Tagged with: , , ,
Posted in Practice management

Leave a Reply

Your email address will not be published. Required fields are marked *


You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>


Recent Tweets




If you have questions or would like to submit a topic you would like for us to consider covering, email us at