Count on the financial advisor “team” construct to throw a wrench in the best-laid plans of strategic mutual fund and exchange-traded fund (ETF) marketing.
In a perfect world, marketers would be able to use an integrated marketing automation/customer relationship management (CRM) system to link financial advisor response to marketing communications for sales follow-up, and overall sales and marketing reporting.
Teams confound attribution and analysis—the individual who sees and interacts with emails and Websites is not always the same person who:
- Conducts investment product due diligence
- Meets with wholesalers
- Makes the go/no go decision
- Ultimately enters the order
However, firms that want their advisor partners to succeed—and you know you do—will need to figure out a way to combine the communication and product usage data of multiple professionals to measure overall sales and marketing effectiveness. Because a whitepaper released by Pershing last week makes clear that advisors are prospering in teams.
The rise of teams, also referred to as “ensembles,” may be even more of a challenge for broker-dealers, according to Pershing.
“Although advisory teams generate significant revenues, broker-dealers are still working to understand them. Often their affiliation models—from compensation to relationship management—still treat advisors as reps, rather than as talented groups,” Pershing says in Why Teams Are the Client of the Future for Broker-Dealers.
See if the below passage (click to enlarge) sounds familiar.
Teams Have Larger Relationships, Grow Faster
While Pershing prepared the 24-page report to help broker-dealer clients adapt, it includes plenty of insights for asset managers. I recommend that you read it in its entirety. What follows are just a few noteworthy points the paper makes.
- Teams are prevalent across all business models, according to data in a 2013 WealthManagement.com compensation survey cited by Pershing. Today's numbers would be higher, presumably.
- The average productivity of advisors who are part of an ensemble team or firm was almost 12% higher ($565,000) than those practicing on their own ($505,000), based on data from the Pershing-sponsored 2014 InvestmentNews Financial Performance Study.
- The typical $2 million ensemble firm grew at a rate of 17.1% in 2014 compared to 13.7% for solo practices.
- “The size of the average client relationship appears to be a perfect function of the size of the firm, i.e., the larger the firm, the larger the average relationship,” Pershing says.
According to the report, firms with less than $1 million in revenue have the smallest client relationships with less than $4,932 in revenue per client (total revenue divided by the total number of clients). “Super-ensembles” attract clients with revenues three times higher (between $14,937 and $16,362 on average).
- Today’s typical advisory team is three times larger than it was in 2001.
- Close to 40% of the ensemble firms in the 2014 InvestmentNews Financial Performance Study are looking to acquire and merge other practices.
- Broker-dealers that fail to adapt to ensemble firms are vulnerable to losing them to RIA-only or hybrid business models.
Pershing cites the 2013 FSI Broker-Dealer Financial Performance and Compensation Study to quantify what's at risk: “...Much of the revenue broker-dealers lost in 2013 came from the loss of top-producing advisors: the average firm lost six relationships with over $500,000 in productivity each. If broker-dealers could stop the ‘bleeding’ of large relationships, this alone would increase their rate of growth by 50%.”
What all has to change in your firm’s practices in order to adapt?