In the preceding year, the economic climate presented a formidable challenge for markets and registered investment advisory firms.
The organic growth of RIAs decelerated significantly amidst a complex economic and market milieu, as delineated by a recent Fidelity Investments analysis. These challenging conditions necessitated a strategic pivot towards client retention, observes Anand Sekhar, Fidelity Institutional's Vice President of Practice Management and Consulting.
Advisors found themselves prioritizing the safeguarding of their existing clientele and elucidating market conditions over potentially higher value engagements, such as comprehensive financial planning, fostering family involvement, and managing the intergenerational transfer of wealth.
While Fidelity has yet to compile data on the 2023 landscape, Sekhar holds an optimistic view, confident that advisors have navigated the storm adeptly and stand ready for growth, contingent on strategic hiring and resuming proactive client interactions.
The slowdown was indiscriminate, impacting RIAs of all sizes. Smaller firms, with assets under $1 billion, saw organic asset growth diminish to 3.2%, a steep decline from 8.2% in 2021. Larger firms, boasting over $1 billion in assets, weren't spared either, with growth tapering to 3.6% from an impressive 8.4%, as indicated by Fidelity's 2023 RIA Benchmarking Survey.
In an effort to counterbalance market-driven profitability pressures, RIAs intensified their client acquisition efforts. Fidelity's study notes that this led to an increased advisor-client ratio and a clientele with limited investment capital, which may translate into lower profitability for RIAs. New client assets constituted merely one-third of organic growth.
Furthermore, the past year saw widespread adoption of fee discounting as a competitive strategy, with 70% of smaller firms and 89% of larger firms offering reduced rates, as per Fidelity's findings. Yet, despite these concessions, RIAs are expanding their service portfolios without a corresponding increase in fees, offering an ever-broadening array of services, as Sekhar points out.
To enhance profitability, Sekhar recommends a nuanced analysis of client data, reevaluation of service offerings, and pricing through a lens of client segmentation. He also advocates for increased outsourcing in investment and portfolio management, allowing advisors to dedicate more time to client-facing and value-enhancing tasks.
Sekhar emphasizes the evolution of advisors' roles beyond mere investment selection, underlining the escalating need to provide additional value through services like tax and philanthropic planning, as well as comprehensive financial health management, catering to the unique requirements and ambitions of their clients.
Fidelity, a leading custodian of RIA assets in the United States, derived these insights from a survey conducted with 245 RIA firms and 3,537 advisors, spanning from mid-April to early July.
