The coming year could be a challenging one for financial advisors’ businesses if markets prove as weak as some anticipate. Firms’ revenues are typically tied to asset levels, after all, and flat or declining assets translate into lower fees. But there are still growth opportunities for savvy firms, including acquiring other competitors, adding advisors with existing clientele, and scooping up clients who’ve lost confidence in their old advisors. For this week’s Barron’s Advisor Big Q, we asked five wealth management pros what they expect in terms of growth next year, both organic and inorganic, for their firms and practices.
Jason Katz, advisor, UBS: My first goal is growth by shrinking: focusing on higher-quality clients. That’s not defined necessarily by a dollar amount, but by the client’s open mindedness and willingness to let us help them. Our phrase is, “no minimums, but no jerks.” Someone can have all the money in the world, but if they’re unreasonable, I’m not interested in doing business with them. I’m happy to do business with people who are open minded, young, up and coming, and may not yet have a seven- or eight-figure account.
As far as growth rates, I’m in a unique position in that I’m challenged with the law of large numbers. I have a practice that has over $4 billion in assets and $25 million in revenue. It’s kind of hard to grow that at a very fast clip for obvious reasons. In spite of how difficult the market was this year, our assets and revenues grew roughly 15%, which I was thrilled with. On organic growth, 5% to 10% is something I’d be very happy with. Not that I’m draconian in my views about the market, but I just foresee a lag effect after what’s happened in the past year or so.
Jon Jones, co-founder and CEO, Brighton Jones: For next year, we expect 10% growth, with the caveat that markets stay flat from 9/30/2022 to 9/30/2022 [the billing year for many firms], which is what we’re expecting. What’s happening with all my buddies who are CEOs of our size firm or bigger is that their budgets for next year’s revenues are way lower. It’s because most of these firms are not growing organically, they’re just kind of riding the wave of the markets. We grew a little over $10 million last year in revenue from new clients, and that helps combat the headwind of a down market. I think these are the types of periods, when there’s stress in the market, where the better firms win disproportionately. Advisors look for firms that provide more services to clients, and so do clients. So I’m kind of excited about the down market from a business standpoint.
Michael Nathanson, chair and CEO, The Colony Group: On the inorganic side, we would target at least two transactions for next year. On the organic side, we target at least 5% in terms of net new assets, and I think we can do much better than that. We are going to focus on a few things as we better position ourselves for accelerated organic growth. For example, we’re going to expand our family office offering and better encapsulate it from a marketing perspective. Some of the things we’re going to be focusing on in terms of innovation are along the lines of family governance and looking for opportunities to work with families around their missions, visions, and values. We will also continue to focus on training around our people and building a culture of growth, not a sales culture.
There are obviously challenges for the industry, including a competition for talent. When I think about growth, I think about the expression, “If you build it, they will come.” So we’re hiring proactively. We’ve actually launched a brand around hiring, called “Seeking the Extraordinary,” and we continue to focus on making our company the pre-eminent destination for people who seek meaningful and joyful careers.
Erin Scannell, CEO, Heritage Wealth Advisors: We’re experiencing our biggest organic growth rate ever this year, although that hasn’t led to a big overall growth rate because of the market. We’re on track to end the year at about $400 million of new assets. Our goal for next year is $500 million, so 25% growth. Our 10-year average for organic growth is in the 20% range, so next year would be a higher average growth rate than average. We’re putting in some infrastructure to develop firm-level asset growth, versus reliance on any individual advisor in the company to go out and network for new business. As far as the state of the markets and the economy, we read articles about how a lot of advisors communicate less in times like this. Maybe they’re nervous for those tough conversations with clients, so their bias is to not communicate, then they’ll have more attrition. We tend to get on offense more in times like this.
Jim Dickson, CEO, Sanctuary Wealth: What I’ve seen historically in the early stages of these markets is that clients kind of stop looking at their statements, put their heads in the sand, and think, “OK, the market’s going to go away and it’s going to come back.” What’s different about this year and 2023 is the amount of up and down, the constant lifeboat drills. So I think you’re going to see record movement of clients to new advisors in 2023. I think the good advisors really shine in this kind of a market, and the bad advisors are exposed. I think our organic growth rate can be around 7% to 10%. The historical average is around 4% or 5%. For advisors who are active and engaged and really providing value, I think there’s a premium that they’ll experience. We have great advisors, so I think we’ll participate in that.
You’re also seeing this massive transition of wealth from the baby boomers. I think it’s going to play right into 2023, and you’re going to see a huge uptick in the number of firms that sell. You’ve got advisors in their 60s who are just done, they’re tired, they’re ready to retire. So I think we’re going to have a record number of deals in 2023.
Jeremy Mesches, senior financial advisor, Wells Fargo Advisors: My revenue growth expectations or goals are 15% to 20% a year. Assets under management are a little bit different, especially in this environment. The types of clients that I work with have changed a bit. I’m still working with everyone that I worked with previously. But there’s a new subset of clients that just weren’t willing to explore options in the past when rates were lower. And it really kind of opened the doors. So those clients are now trying to capture the current fixed-income opportunities that are available. The revenue on some of those products is lower, but the opportunity is just tremendous. There’s just so much money in motion in this environment.
Yes I’m concerned about the economy and markets, but I’m not concerned about how that impacts my business. I think there are ways to continue to grow in this environment. Actually it’s a little refreshing: We haven’t been in this type of environment in quite some time, and it opens doors to talking to different types of clients.
Editor’s note: Answers have been edited for length and clarity.
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