Operating profit margins have hit a 10-year high for advisory practices, while organic growth rates have dropped to a 10-year low, according to a new study.
Registered investment advisory firms and other advisory practices "have never been more profitable, yet they have also never struggled more to generate sustainable growth," according to
"Profitability is a resource for infusing capital, encouraging investors and shareholders and demonstrating infrastructure and hiring investments, to name a few," Catherine Williams, the chief operating officer at The Ensemble Practice, said in an email. "But profitability is the intersection of operational efficiency and growth, and if you do not focus on long-term, sustainable growth, there is a risk profitability will be impacted over time."
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The time to adapt is now
This explains why the strong profitability numbers also come with some warnings.
"Advisors are managing more assets per client, generating more revenue per relationship, and retaining clients at remarkably high rates. By every traditional measure of business health, the independent advisory industry is thriving," the report said, pointing out how the 10-year trends shown in one of its many charts demonstrate those risks. "Profit margins trend steadily upward, organic growth trends steadily downward, and the two lines move in opposite directions with a consistency that rules out coincidence. The statistical relationship confirms that nearly half of the variation in a firm's organic growth in any given year is explained by how profitable the firm was the year before. The data is suggesting that prosperity breeds complacency. Complacency, in turn, kills growth."
In that environment, many RIAs are
For example, Salt Lake City- and Scottsdale, Arizona-based RIA firm Crewe Advisors received a minority investment from financial service holding company Wealth Partners Capital Group and private equity firm HGGC in a deal of undisclosed size that closed last month. Besides providing the financing for future M&A deals, the capital could help Crewe to invest in marketing that would complement its traditional organic growth from referrals, according to Ryan Halliday, the firm's managing partner. Crewe reached its current size of nine advisors with $3.5 billion in client assets largely on the strength of its customers' recommendations and other referrals.
"We really truly have just been working hard to get introductions. I think we're very fortunate to be in Arizona and Utah," Halliday said. "Business owners know business owners, and, if we're doing the right thing and doing a good job, we tend to get referrals pretty rapidly."
But that hasn't been the case at many RIAs and other advisory practices, and that
"Whether you are the founder approaching a time you may want to monetize your decades of investment, the next gen who is being encouraged to invest in the business, or an outside partner who wants to invest in your business, doing what you can to maintain a strong valuation is imperative," she said. "The lack of organic growth is likely an indicator of lack of investment in business infrastructure, team expansion and the service models for clients."
Scroll down to see five charts tracking profitability, organic growth and leads at advisory practices, courtesy of data from
To read FP's series on launching and running successful RIAs,
Productivity — a crucial metric for firms
Since compensation represents more than three-quarters of the total expenses for advisory practices and amounts to nearly half of their annual revenue, a firm's "people productivity" is one of the biggest profit drivers, according to the report. So the amount of revenue per staff member or per "relationship manager" (advisors or senior-level advisors) offers "a useful measure of how effectively a firm converts team capacity into revenue," it said.
Whether as a result of investing in new staff members to assist those relationship managers or simply having a tough time recruiting experienced advisors, the ratio of the revenue generated by advisors compared to those of other employees enlarged to 3.8x last year from 2.8x in 2024.
"Client selection appears to shape nearly every other dimension of firm performance," the report said. "Firms serving clients who generate $5,000 to $10,000 in annual revenue — roughly equivalent to $500,000 to $1 million in AUM — achieve the strongest balance of organic growth and profitability. By contrast, firms at the highest end of the client-size spectrum, working with clients who generate more than $20,000 in annual revenue, report 35.6% margins but only 1.7% organic growth. That growth rate is no better than the rate reported by the smallest firms serving the least affluent clients. The data suggests that moving upmarket is not, by itself, a growth strategy. For many firms, it is simply a harvesting strategy with a prestigious label."
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More profits today or tomorrow?
With organic growth falling and profits rising, the resulting "scissors shape" poses "a clear and confronting" challenge for RIAs and other advisory practices, the report said. Firms face a business climate in which "higher profitability appears to be associated with lower future growth," at a level that suggests those generating larger bottom lines "may also become more complacent about growth," it noted. The largest firms netted a margin that easily outpaced the historic profit rate — but came in below that of smaller firms.
"At this scale, firms face higher management costs, including executive compensation, and require more experienced advisors to manage a larger number of client relationships, increasing compensation expense," the report said. "Size appears to be a meaningful advantage when competing for large client relationships, but it can also create added pressure when managing the P&L."
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Stock performance, asset appreciation are the real growth drivers
Last year, the RIAs and other advisory practices added a net 1.9% of AUM from new client relationships, when comparing departures to incoming assets — a pace that is "unacceptable to most firms," the report said. That means the industry is "healthy financially" but continuing to flounder in its efforts to generate new organic growth.
"Firms that conflate total AUM growth with organic growth are systematically overestimating their business development performance," it said. "Strong markets continue to dampen the urgency for investors to seek or change advisors. Self-directed investors who experienced positive returns in 2025 may have little immediate motivation to engage a professional firm. That may also be changing as you read this. The continued focus on M&A activity, particularly among the largest firms, may also be consuming leadership attention that would otherwise drive organic growth strategies."
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Referrals are king, but they don't rule as autocrats
For decades, client referrals
"The fastest growing firms (firms with new client growth over the top quartile of 7.7%) share one consistent characteristic: they generate leads from multiple channels rather than waiting for client referrals," the report said. "Referrals remain the highest-quality lead source, but exclusive reliance on them produces the slowest growth. The firms breaking out of this industry pattern are doing so through advisor activity,
A healthy bottom line, with a big question for the future
At an average operating profit of nearly $2.1 million, RIAs and other advisory practices are prospering. The participating advisory firms generated the vast majority of their revenue, 87%, from asset-based fees. On the other hand, compensation for advisors represented the biggest line item expense, at 26% of the firms' overall revenue.
While any business owner would welcome a profit margin above 38%, the report said that the growth challenges demonstrated in the results point to some risks in the future.
"The central focus of this report is not how profitable advisory firms are," the report said. "More importantly, it raises the question of whether the conditions driving that profitability are creating a durable foundation for future growth or gradually eroding the very structure on which that profitability depends."
