The organic growth of financial advisory firms took a big hit in 2022, according to Fidelity Investments.
It was a year in which firms could not rely on increasing client bases or adding revenue from existing clients to grow, said Fidelity in its “2023 RIA Benchmarking Survey.”
Organic asset growth dipped below 4% last year after a high of 8.2% in 2021, which reflected a 40% decline in new assets under management from both new and existing clients, according to the survey of 245 RIAs. Instead of putting efforts into growing the client base and share of wallet, advisors were focused on retaining and reassuring their existing clients.
The focus on client retention was “likely driven by market volatility,” Anand Sekhar, vice president of practice management and consulting at Fidelity Institutional, said in an email exchange. “Rather than engaging with clients on topics and goals that might be considered higher value and lead to share of wallet gains, they instead spent time protecting their core client base and helping clients understand the state of the market.”
The reaction was not unexpected in a year when the market experienced dramatic changes, which means organic growth could be regained in 2024.
“I think overall, firms weathered this storm well and are poised for growth as long as they can focus on the right hiring levels and getting back to more proactive engagements with clients,” Sekhar said, and there are actions advisors can take now to see more organic growth at their firms.
Last year, firms tried to add new clients to offset profit declines, but few saw the addition of large clients. New assets from new clients contributed to only about a third of organic growth activity, which did not necessarily translate to significantly higher AUM.
“Instead, this increased the number of clients per advisor and put unnecessary strain on advisors with little to no impact [on AUM], setting off a chain of staffing supply-and-demand implications for a firm,” the survey said. “It’s important for firms to gauge the right level of staffing and support needed for their books of business.”
Fidelity noted the real talent crunch facing the industry. And when you add to that the flatter revenue streams of 2022, it seemed like a good time not to add staff, which is usually a precursor to firm growth. “But as advisors are expected to provide more services at steady price points, this can inevitably hurt overall productivity and also impact profitability,” Sekhar said.
Another way to boost a firm’s growth is to increase the efficient productivity of its advisors. Yet advisories often continued to offer discounts and bundled offerings to little avail. Firms are providing more services than ever before for roughly the same fees, the survey noted.