Profit margins dwindle for US advisory firms
US Financial advisory practices are experiencing similar challenges to local advisers as their rising costs exceed growth rates, according to the 2002 US Financial Planning Association (FPA) Performance Study of Financial Advisory Practices.
Conducted by US firm Moss Adams LLP, the survey details how revenue has continued to rise at many US advisory firms due to an influx of new clients in the down market. But the survey found this has been outstripped by increased costs eating away at the bottom line.
The FPA’sJournal of FinancialPlanningexplains that despite plunges in stock prices, the typical financial advisory practice increased total assets under management by 11.3 per cent, from US$30 million in median assets in 2000 to US$33.4 million in 2001.
The typical advisory practice in the study took on 20 new clients and $5 million in new assets in 2001, and was also successful in retaining exiting clients.
However, this growth was eroded by growing costs, with the operating profit margin at advisory firms falling to 9.6 per cent last year, down from 14.3 per cent in 1999, after administrative salaries and benefits took their toll.
On average, operating expenses amounted to 44.1 per cent of the revenue earned in 2001, up from 38.5 per cent in 1999, with larger firms spending more on staff advisers and administration employees, including a 78 per cent increase on non-managerial staff.
The report also showed that size does matter in the advisory business, with large multi-adviser firms proving more profitable than solo advisers.
The survey included responses from 566 participating advisory firms and details performance over a three year period, between 1999 and 2001.
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