Call it the secret sauce, the black box or the hidden magic: What, exactly, do high-performing advisory firms do differently than their less successful peers?

Fidelity Investments drew back the curtain last week, offering key insights from the firm’s latest RIA Benchmarking Study to a packed room of advisors attending Fidelity’s annual Inside Track NYC Conference.



High-performing firms were identified as those scoring in the top 25% in three areas:

  • growth in AUM over three years.
  • profitability, measured by earnings before owner’s compensation margin (or EBOC) as a percentage of revenue.
  • productivity, as measured by revenue per full-time employee.

These high-performing firms grew 20% from 2008 to 2011, compared with 12% for other firms surveyed by Fidelity. They reported a 66% EBOC profit margin, while other firms reported a 45% profit margin. Revenue for full-time or full-time equivalent employees at high-performing firms was $309,000, while other firms surveyed reported an average $231,000 per full-time employee.
In absolute dollar terms, the differences were striking. For example, if a firm with $2 million in revenue and $350 million in AUM were a high performer, according to Fidelity its incremental revenue would be $688,000, incremental profit would be $420,000 and incremental assets under management would be $113 million.

“High-performing firms were consistently a little bit better in each category across the board,” said Mathias Hitchcock, vice president for practice management and consulting at Fidelity. “The point is that in the end it adds up.”

Here’s what the high-performing firms did differently:

1. Demonstrated an ability to grow assets. Techniques included better sales effectiveness, as well as higher client retention and stronger investment performance. “Your net flows of contributions minus withdrawals should be positive, and that’s what high-performing firms are able to do,” Hitchcock said.

To grow assets, advisory firms should set aside time to track and review their data, he urged, analyzing trends to identify potential problems and connecting insights across initiatives.

2. Focused more intently on wealthier clients. High-performing firms reported 20% higher AUM than other surveyed firms, and had more clients with $1 million or more in assets. Firms should consider developing or revising a target client profile, along with a more segmented strategy, Hitchcock told advisors. The next step, he said, was to tell a better story about the firm to clients and improve marketing and business development practices.

3. Applied greater rigor to client selection. High-performing firms also showed great discipline in sticking to that ideal target client profile, which resulted in faster closes than their peers, the study found.

4. Bundled services in the overall asset management fee. High-performing firms were more likely to bundle services such as financial planning, estate and trust planning, tax planning and philanthropy in their fee, the study found.

5. Set relatively higher fees for wealthier clients. Fees for clients with $1 million in AUM or less were similar across the board, according to the study, but high-performing firms charged more as client size increased.Firms should research their competition and develop and document a pricing strategy, Hitchcock recommended, implementing any changes with a phased approach. He also urged advisors to read The Strategy and Tactics of Pricing: A Guide to Growing More Profitably, by Thomas Nagle, John Hogan and Joseph Zale.

6. Leveraged staff more effectively. High-performing firms had fewer advisors and more support staff than other firms, the study found. “That’s a key difference,” Hitchcock said. Advisors should move one or two activities from advisors to support staff, he suggested, and make sure their growth and hiring plans are connected.

7. Maintained higher per-advisor ratios for clients, assets and more. Advisors at high-performing firms work with more clients, are responsible for more assets and contribute more revenue than advisors at other firms. To boost those ratios, firms should take the time to engage in benchmarking and review results with relationship managers, Hitchcock said.

Focus, discipline and execution were critical for improvement across the board, he noted. “You can always change your plan,” he told the advisors, “but only if you have one.”

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