A majority of financial advisors are expecting their businesses to grow in 2011, according to the latest Financial Professional Outlook (FPO), a quarterly survey of US financial advisors from Russell Investments. Of the more than 800 advisors surveyed, nearly a third (31%) predict revenue growth of 10-14% in 2011 and almost half (44%) indicated that they expect to see revenue growth of 15% or more.
“The latest survey results convey a renewed sense of confidence and optimism amongst advisors, about not only the capital markets but also their own businesses,” says Kevin Bishopp, director of practice management for Russell’s private client services business. “While the global economic recovery continues slowly, investor panic has largely subsided and advisors are now able to shift their focus back to meaningful long-term planning and wealth accumulation instead of triaging client concerns and addressing their anxieties.”
The majority of advisors (86%) reported being optimistic about the capital markets broadly over the next three years, up from 59% in December 2010. In the December iteration of the FPO survey, only 7% of advisors believed that their clients shared their optimistic views, but in the latest survey 36% felt their clients were optimistic about the capital markets in the coming years.
When asked what will drive anticipated business growth, 72% of respondents considered new client acquisition to be a key contributing factor. Of those advisors who expect revenue growth for 2011 to be at least 15%, 88% pointed to new client acquisition as a primary growth driver.
Nearly half of the advisors surveyed (49%) indicated that generating more revenue from existing clients would drive revenue growth and 40% cited market appreciation as a key component.
Bishopp cautions against such heavy emphasis on conventional wisdom supporting new client acquisition as a primary driver of growth, saying, “Russell encourages advisors to focus efforts internally first to drive significant results for clients and in turn build client satisfaction. Doing this can have a multiplier effect. Not only can you grow revenue from your existing client base, but you can also make clients your most influential advocates and in turn sources of quality referrals.”
According to the survey, nearly one quarter (23%) of advisors do not segment their client base. At 38%, assets under management was the most common measure cited on which to base client segmentation, followed by revenue (16%).
Respondents also reported spending 50% of their time with their “top-tier” clients, which Bishopp considers low given that top-tier clients typically generate 70-80% of an advisory firm’s total revenues. “We find that a majority of advisors’ top clients are underserved in relation to the revenue they generate. As such, revenue should be a central tenet of client segmentation,” says Bishopp. “Advisors should devote 80% of their time and resources to top-tier clients, create leverage and efficiency in serving second-tier clients and evaluate which third-tier clients may in fact be over-served and unprofitable.”
“New client acquisition is cited as the primary driver of anticipated growth this year. However it is important to recognise that the best advisors obtain new clients from inbound referrals, not marketing or prospecting efforts,” continues Bishopp. “Referrals are a direct reflection of the value that the advisor delivers to the client and therefore, advisors who segment their book of business and drive significant value to their top relationships are in the best position to grow their business relative to peers.”
According to the latest FPO survey, advisors and clients likely have different perspectives on where the obstacles to reaching financial goals lie for individual investors. Fifty-one (51) percent of respondents believe that their clients feel their own lack of comfort with risk is a primary impediment, and 51% also pointed to the low-return environment as a major perceived obstacle amongst clients.
Advisors appear to share this apprehension around the low-return environment, with 43% pointing to this as an impediment to clients reaching their goals. Meanwhile, 58% of advisors responding to the survey say that what concerns them the most is clients underfunding their retirement accounts.
“Advisors must work closely with their clients to help them understand that if they remain risk-averse for the long haul, they are likely to face a different kind of risk down the road: less money to spend in retirement or even running out of money in retirement,” says Bishopp. “Advisors play an important role in refocusing clients to think about investing success in terms of matching their ultimate savings to their eventual spending needs. In this context, decisions about asset allocation can be made more rationally and separated from any knee-jerk feelings about what the market is doing at the moment.”