Two Industry Studies: What Can Be Learned and How This Information Can Transform Your Business

Monday, December 23, 2013 17:26
Two Industry Studies: What Can Be Learned and How This Information Can Transform Your Business

Tags: Advisor businesses | practice management | strategic planning

When new industry studies come out, I enjoy looking at what the research is telling us about the topic and potential impact on the future of the industry. In these studies, there often are a few statistics that can help firms identify opportunities for improvement and ways to separate themselves from the competition. This is a good time of the year to identify areas your firm needs to improve and map out the initiative for 2014.

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Two studies were recently released.  The Future of Practice Management from the FPA Research & Practice Institute, and Financial Planning (December Issue) magazine’s 2013 “What’s New In Advisor Tech?”

The Future of Practice Management study included nearly 2,400 professionals from various positions and levels within financial planning firms.  The FPA Research and Practice Institute will conduct quarterly studies in 2014 that will delve deeper into analyzing the gaps in advisory businesses.

A number of findings jump out from the study that can help firms identify areas to target for improvement:

·         50% of financial advisors do not have a written business plan. 67% say they have a formal business planning process in place.  Larger firms are more likely to have a plan in place.  The good news is that a majority of those who have a plan review progress relatively frequently, with about one-third reviewing monthly.

·         46% of advisors don’t have a retirement plan for themselves. However, 40% responded that they planned on retiring within the next 14 years.

·         Only 25% of financial advisors have a succession plan in place to transition their business when they retire. 31% for advisors ages 60-64, and 41% for advisors 65 or greater.

·         49% indicated they are considering selling their business but not for at least ten years. 18% are looking to sell in the next five to ten years, and 6% are actively looking for, or negotiating with a buyer.  Looks like a lot of businesses will be sold in the next ten to fifteen years.

·         Only 25% of advisors have a formal definition of their ideal client. However, 86% say they have a general idea of the kinds of clients they want to work with.

·         41% have not established a standardized business development process.

·         61% of respondents have segmented clients based on value. Only 27% have a formal, written service agreement to help manage client expectation.

·         Advisors are currently offering a wide range of services to meet the needs of clients. Many firms are beginning to offer specialized services to handle specific client needs

·         Only 42% of advisors say they have a written operations manual that documents processes and procedures.

·         Less than half of advisors (47%) have formally assessed capacity. However, 74% believe they are operating under capacity and can comfortable add new clients.

·         67% of firms are gathering some sort of feedback from clients.

These should have you thinking….do I fall into the wrong % side of one or more of these categories. If so, how do you plan to resolve these in 2014?

Financial Planning magazine’s “What’s New In Advisor Tech?” featured in the December 2013 issue is a yearly technology survey of various categories of Financial Planning software usage.  This year’s survey included more than 1,100 responses.

Here are a few interesting findings from this year’s study:

·         60.6% of advisors do not use any rebalancing software, lower than last year’s 69%. And less than 50% of firms with more than $500 million in AUM do not use rebalancing software. This is surprising, since rebalancing software can provide a good ROI, particularly for larger firms.

·         30.6% of advisors responding to the survey do not use financial planning software, which increased from 26% last year. 57.5% of commission-based advisors don’t use financial planning software.

·         The portfolio management software category included 23 products this year. The study points to the price tag for this software as the reason for the large number of vendors.  Reporting features in PM software appear to be lagging the needs of advisory firms and their clients. Given the competition in this software, reporting capabilities should improve in the near future.

·         Technology satisfaction among advisors using custodian or B-D technology , although improving, is still low. Among custodians, TD Ameritrade leads with only 47.6% of respondents “satisfied” with their technology. Among B-Ds, Raymond James was tops with 42.7%, doubling last year’s satisfaction results.

The positive take-away from this study was that the results suggest that advisors realize that technology is an investment in the firm opposed to an expense and that investing in technology will benefit their growth and efficiency.

As you plan for 2014, digging into the results of these studies can help remind us of areas- strategic planning, advisor/owner retirement planning, succession planning, marketing, operation, and technology that need to be focused on to build a stronger future for the firm and the founders/owners.

Build your business wisely.

Comments (2)

Great post, Reid Two comments.

1. The sharply lower rate of adoption of rebalancing software (from 69% to 61%) just since last year along with the decline from 30% to 26% in use of financial planning software indicates that the makeup of the advisors responding to the survey probably changed.

Adoption by advisors of rebalancing and planning software doesn't bounce around year to year. The character of the respondents does change, however, and explains the variance.

The data about adoption of different categories of professional apps is filled with statistical noise. It provides an indication of the adoption of different categories of professional software for advisors rather than a hard number.

2. The growth in the number of portfolio management software apps is probably also evident in other categories, like financial planning apps. Software gets easier to develop every year. I think we're going to see a lot of little companies with practice management apps for very specific tasks and workflows come to market. I think we're going to see lots more small tech companies catering to specific types of advisors and challenge bigger companies.
agluck , December 27, 2013

1. I agree with your comments about the makeup of the respondents being different this year which likely accounts for the variance among rebalancing and financial planning app adoption. The decline (or rise) in the change in adoption of an app should not be the focus for the reader of the study. Instead, the total % of firms still not adopting a particular app is more telling. The software is becoming more sophisticated, easier to use, and integrates better with other apps, not to mention the benefits to the clients. This offers an opportunity for firms who use these apps.

2. Agreed. Because software gets easier to develop we will likely continue to see companies enter the market. For advisors, the increase in options creates challenges in selecting the proper app for their particular need. As you mentioned, we are beginning to see, and will continue to see, apps from companies that handle specific tasks and workflows and that cater to specific types of advisors.
ReidStone , December 29, 2013

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