New FA Insight Study Shows an Advisory Industry
That’s Getting Younger and Poised for Expansion
New FA Insight benchmarking research from TD Ameritrade
Institutional1 finds the leadership of registered investment
advisor firms (RIAs) is getting younger – passing the torch from
the Baby Boomer to Gen X – and investing to sustain their firms’
strong performance well into the future.
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The workforce of registered investment
advisors (RIAs) is trending younger, according to The 2019 FA
Insight Study of Advisory Firms: People and Pay. (Graphic: TD
Ameritrade Institutional)
The report found that the advisory community as a whole is
getting younger, reversing a graying trend that had many advisors
worried about the sustainability of the industry. With a median age
of 49 years – three years younger than in 2015 -- six out of 10
firms have at least one owner who expects to stay at the helm for
at least another 12 years, according to The 2019 FA Insight Study
of Advisory Firms: People and Pay.
The median age of firm associates, overall, dropped to 42 from
44 in 2015, while the median age of lead advisors is now 46 years,
down from 50. The study also found that the number of owners who
are 40 years of age or younger equals the number of firm owners who
are over 60.
“As the next generation of RIA leaders comes to the forefront,
they’re investing in their firms with a long time horizon,” said
Vanessa Oligino, Director of Business Performance Solutions at TD
Ameritrade Institutional. “We expect to see different approaches to
industry challenges – whether they be staffing and compensation,
growth and organizational design, or technology and
innovation.”
Firm owners remain characteristically confident about continuing
growth in 2019. They’re investing in senior-level experience, with
lead advisor compensation up by 12 percent over the last two years,
in an effort to secure seasoned talent that can help supercharge
growth and navigate tomorrow’s challenges.
The report found that, although 2018 ended with the major stock
indexes posting their worst yearly performances since the 2008
global financial crisis,2 choppy markets did not quell firm owners’
optimism, even as growth in assets under management (AUM)
slowed.
The median revenue growth rate for firms was 14 percent in 2018,
up slightly from 2017, while the median client growth rate of 7.4
percent was little changed. The rate of growth for AUM dropped to
5.9 percent.
Today’s Advisory Firms: Growing and Profitable
Firms continued on their growth trajectory in 2018, thanks to
efficient operations management and the increase in productivity
from associates in revenue-generating roles.
At 21 percent, a typical firm’s operating profit margin last
year rose by more than a percentage point from 2017, and overhead
expenses as a share of revenue fell slightly in 2018. This
translated to rising income for firm owners, whose median total
income rose 3.6 percent in 2018 to $633,000, the highest since
2014, or 55 cents for every dollar or firm revenue.
Despite market declines at the end of 2018, firm financial
performance was also strong compared to the average of the previous
five years. The rate of revenue growth increased to 14 percent,
versus 12 percent, while operating profit margin increased from 20
percent to 21 percent. Revenues generated by revenue-generating
roles were up 14 percent to $547,000 in 2018, while annual revenues
per full-time equivalent (FTE) were up 13 percent over a two-year
period.
Wanted: Seasoned Help
Advisory firms anticipate doubling their hiring rate in 2019
compared to 2018, with 61 percent making at least one hire last
year. The largest firms plan to increase headcount by 10 to 12
percent, bringing on board seven FTEs.
Senior revenue generators and advisory firm staff, who have a
proven ability to navigate market volatility and ease client
concerns, have seen compensation rise over the last two years,
whereas compensation for less experienced revenue generators has
fallen. The compensation of associate advisors, who are now
generally younger and have less experience than in prior years, has
gone down by 8.5 percent and operations manager compensation rose
during this period by 8 percent during this period.
The quest for experience may also help explain why firms
continue to recruit lateral hires from inside the industry. RIAs
tend to hire predominately from other independent RIAs for revenue
roles, though they may also consider recruiting from other
financial services firms and wirehouses.
Only 4 percent of firms are hiring recent college graduates for
revenue-generating roles. A slightly higher amount, 6 percent, are
hiring professionals from outside of the financial services
industry.
People costs represent 77 percent of a typical firms expenses
and 59 percent of total revenues. For every dollar spent on cash
compensation, firms spend an additional 14 cents, on average, on
retirement programs, medical benefits, training and payroll
taxes.
“Independent advisory firms are laser-focused on growth and
profitability, keeping expenses in line, while generating healthy
returns across market cycles,” said Oligino. “Entrepreneurial and
optimistic, successful owners are making investments they believe
will benefit their firm in the long-run.”
Click here to read the executive summary of The 2019 FA Insight
Study of Advisory Firms: People and Pay.
Methodology
The 2019 FA Insight Study of Advisory Firms: People and Pay is
based on responses to an online survey that was fielded between
February 5 and March 29, 2019. This year, 405 qualifying firms
completed submissions. To qualify for participation, firm must have
a minimum of $100,000 in annual revenues and be in business for at
least 12 months. All survey responses were screened for data
accuracy using automated and manual review methods. When
discrepancies were found, follow ups were conducted with firms to
clarify their information.
Survey questions focused on advisory firm human capital
practices, as well as basic financial performance and operating
characteristics. Information specific to individual firms
participating in this study is strictly confidential. All data
presented in the report are the aggregate of participating
firms.
FA Insight is a product of TD Ameritrade Institutional, Division
of TD Ameritrade Inc. FA Insight is a trademark owned by TD
Ameritrade IP Company, Inc.
About TD Ameritrade Institutional
TD Ameritrade Institutional empowers more than 7,000 independent
registered investment advisors to transform the lives of their
clients. It provides powerful technology and resources that help
simplify running a business and let advisors spend more time doing
what matters most — serving their clients. Through meaningful
innovation, steadfast advocacy and unwavering service, TD
Ameritrade Institutional supports RIAs as they build businesses
that positively impact their clients and communities. TD Ameritrade
Institutional is a division of TD Ameritrade, Inc., member
FINRA/SIPC, a brokerage subsidiary of TD Ameritrade Holding
Corp.
About TD Ameritrade Holding Corporation
TD Ameritrade provides investing services and education to more
than 11 million client accounts totaling approximately $1.3
trillion in assets, and custodial services to more than 7,000
registered investment advisors. We are a leader in U.S. retail
trading, executing an average of approximately 800,000 trades per
day for our clients, more than a quarter of which come from mobile
devices. We have a proud history of innovation, dating back to our
start in 1975, and today our team of 10,000-strong is committed to
carrying it forward. Together, we are leveraging the latest in
cutting edge technologies and one-on-one client care to transform
lives, and investing, for the better. Learn more by visiting TD
Ameritrade’s newsroom at www.amtd.com, or read our stories at Fresh
Accounts.
Brokerage services provided by TD Ameritrade, Inc., member FINRA
(www.FINRA.org) / SIPC (www.SIPC.org).
1 TD Ameritrade Institutional is a division of TD Ameritrade,
Inc., a brokerage subsidiary of TD Ameritrade Holding
Corporation
2 US stocks post worst year in a decade as the S&P 500 falls
more than 6% in 2018, CNBC.com, December 31, 2018.
Source: TD Ameritrade Holding Corporation
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version on businesswire.com: https://www.businesswire.com/news/home/20190730005190/en/
Joseph Giannone Communications & Public Affairs W: (201)
369-8705 Joseph.Giannone@tdameritrade.com
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