2016 advisorbenchmarking ria trend report practice ... · categories trending upward. the...

2016 AdvisorBenchmarking RIA Trend Report

Practice Management & Operations

1 wealthmanagement.com

FIGURE 1: Advisors’ Top Iniatives for Their Business (2016)

%35

30

25

20

15

10

5

0

■ Initiative 1 ■ Initiative 2 ■ Initiative 3 31%

FIGURE 1: Advisors' Top Initiatives for Their Business in 2015

Grow profit via higher AUM and revenues

21%

16%

31%

Improve the firm’s marketing

and business development

efforts

20%

14%12%

Improve client

satisfaction

17%16%

7%

12%

15%

Invest in new or existing technology to become more

efficient

11%

15%

7%

Improve strategic business planning

5%6%

7%

Hire additional

staff to help grow

the firm

10%

3%

5%

Acquire and integrate another practice

Develop or enhance a succession

plan

5%

2%

7%

Position the firm for sale

2%3%

1% 1% 1% 1%

Grow profit via expense reduction

INTRODUCTIONFor more than a decade, the AdvisorBenchmarking RIA Trend Study has provided the financial advisory community with analyses of advisor performance and attitudes across a variety of areas critical to their business practices—and offered a current assessment of how the top performing practices differ from their peers across these areas.Like last year, the study results are being published on WealthManagement.com in nine individual chapters providing a comprehensive look at the survey’s most relevant measures: practice

management and operations; ETFs; alternative investments; marketing and client relations; financial performance; investment management; best practices; robo-advisory, and economic and advisory business outlook.In this chapter we present key findings and insights from our survey questions on practice management and operations, including advisors’ top initiatives for their business, services offered, functions outsourced, their most time-consuming activities, documentation trends and the recent Department of Labor fiduciary ruling.

ADVISORS’ TOP INITIATIVES FOR THEIR BUSINESS IN 2016Consistent with last year’s survey, the top initiatives for RIAs this year are aimed at driving organic growth, improving client satisfaction, better business planning, and investment in technology. The two top initiatives, with 31% response rates for both, are 1) increasing profits via higher AUM and revenues; and 2) improving marketing and business development. And, approximately 20% of advisors list one of these two initiatives as their second highest priority,

indicating that a majority of advisors are focused on actions and investment in resources required to drive robust organic growth. The next tier of responses includes improving client satisfaction, improving strategic business planning, and investing in technology, all of which garnered total response rates of one-third or more. In contrast, very few advisors report as a top-three initiative either expense reduction or selling their firm. Based on this hierarchy of goals, advisors are clearly more focused on investing in their business to drive sustainable growth.


TOP INITIATIVES COMPARED TO LAST YEAR For 2015 and 2016 we summed the responses for each year for each initiative to better compare year-to-year changes and we note some interesting differences in this year’s survey. While profit growth via higher AUM and improvement in marketing and business development are the most popular responses in both years, the percentage of advisors indicating them as one of their top 3 initiatives declined slightly in 2016. The former declined by seven percentage points to 69% and

the latter by five points to 60%. The largest year-to-year changes occur in the next two most popular initiatives. Forty-five percent of respondents indicate improvement in client satisfaction as one of their top-three initiatives, a material increase over 37% last year. Also, at 35% this year compared to 24% last year, an even larger increase is observed in the percentage of advisors indicating improvement in strategic business planning. The year-to-year changes appear to reflect RIAs adopting a more granular approach growing and managing their practices.

2016 AdvisorBenchmarking RIA Trend ReportPractice Management & Operations

Forty-five percent of respondents indicate improvement in client satisfaction as one of their top-three initiatives.

FIGURE 2: Advisors’ Top Initiatives for Their Business

Grow profit via higher AUM and revenues

Improve the firm’s marketing

and business development e�orts

Improve client

satisfaction

Improve strategic business planning

Invest in new or existing technology

to become more e�cient

Develop or enhance a succession

plan

Hire additional sta� to help

grow the firm

Acquire and integrate another practice

Grow profit via expense

reduction

Position the firm for sale

76%

68%

2% 3%2%6%

18%14%

16% 18%

36%33%

37%

45%

65%61%

24%

34%

23%18%

Figure 2: Advisors' Top Initiatives for Their Business

90

80

70

60

50

40

30

20

10

0

%■ 2015 ■ 2016

For broker dealer use only. Not for use with the public.


SERVICES OFFERED BY ADVISORS IN 2016In 2016, most services we polled are offered by the majority of RIAs. Standard advisory functions, such as basic investment advice, investment management, financial planning and retirement planning are most common, but there is a split on estate planning, insurance, and charitable giving planning. While there is relative consensus around offering planning-based services, the actual definition of such practices likely

varies across firms. Advisors tend to refer clients to third parties for certain services like tax preparation, trust services, private banking and business advisory services. The only services not offered by a majority of advisors are concierge services and investment management to other advisors, both of which likely fall out of the scope of most RIA practices. Overall these results are largely consistent with prior year responses, but we do observe some changes, which are discussed in the next section and illustrated in Figure 4.


The only services not offered by a majority of advisors are concierge services and investment management to other advisors

FIGURE 3: Servies Offered by Advisors (2016)

0

10

20

30

40

50

60

70

80

90

100%

FIGURE 3: Services Offered by Advisors in 2015

Basic investment

Note: Values less than 5% are not labeled.

advice

Investment management

Financial planning

Retirement planning

Estate planning

Insuranceplanning

Tax preparation

Trust services Private banking

Charitable giving planning

Business advisory services

Concierge services

Investment management to other advisors

Do not o�er Outsource to third party Refer to third party Plan to o�er Currently o�er

96%

79%

88%95%

67%

79%

14%

23% 20%

62%

5%

11%

18%

28%

26%

9%

34%

60%

5%

14%

5%

16%24%

5%

59%

28%

9%

42%

37%

16%

23%

39%

35%

11%

11%

5%

19%

5%

7%6%

5%

7%

7%


TRENDS IN SERVICES OFFERED: 2014-2016When we review the 3-year trends in responses to the services offered question we find three categories with notable change. Since 2014, the percentage of firms offering estate planning has increased from 54% and 55% the prior two years to 67% in 2016. We observe a similar trend in insurance planning, with increased to 79% this year from 54% and 59% in 2014 and 2015, respectively. The other

service increasingly offered, albeit with a more stable upward trend, is charitable gift planning, which is now offered by 62% of RIAs compared to 57% and 60% the prior two years. It certainly appears that advisors continue to expand their value-added service offerings, perhaps as a function of greater scale and capabilities, but certainly reflecting a broader and higher touch approach to the client relationship and an ever-increasing focus on client satisfaction.


Since 2014, the percentage of firms offering estate planning has increased from 54% and 55% the prior two years to 67% in 2016.

FIGURE 4: Trends in Services Currently Offered



100

80

60

40

20

0

%

Estate Planning

n 2014 n 2015 n 2016

Insurance Planning Charitable Giving Planning

54% 54% 57%55% 59% 60%67%

79%

62%


Taxes remain the most commonly outsourced function by advisors

FIGURE 5: Functions Outsourced by Advisor (2016)


0

10

20

30

40

50

60

70

80

90

100%

FIGURE 4: Outsourced Functions by Advisors (2015 )

Tax filings Compliance Marketing/PR HR function Bookkeeping Portfolio management

Trading Asset allocationmodels

SometimesMost of the timeAlways Rarely Never

Research

43%

19%

6% 5%

17%22%

8% 11%

14%

13%

14%11%

7%

13%

17%

7%

7%

8%

17%

31%32% 15%

12%

23%

14%

14%

5%

12%

20% 24%

15%

9%15%

19%

18%

16%

46%

30%

39%

29% 29%

44%

35%

53%42%


FUNCTIONS OUTSOURCED BY ADVISORSTaxes remain the most commonly outsourced function by advisors. Given the expertise and professional requirements for tax preparation and filing, it comes as no surprise that 43% of respondents always outsource it and another 14% farm it out most of the time. Other functions more likely to be outsourced include compliance and bookkeeping, both of which tend to be necessary, but behind-the-scene activities,

with less direct linkage to the customer experience. Marketing, research, and trading are outsourced by only a small percentage of firms, and those that do, generally do so only occasionally. As functions generally viewed as core components that support the overall service offering, they are risky to outsource entirely. Overall, we observe that RIAs are most likely to outsource those activities that are not as critical to the client relationship or the long-term risk-adjusted performance of client portfolios.


TRENDS IN FUNCTIONS OUTSOURCED 2014-2016When we review the 3-year trends in responses to the functions outsourced question we observe three categories trending upward. The percentage of advisors outsourcing compliance has nearly doubled over the period, from 11% in 2014 to 19% in 2016. We note a very similar increase in the percentage of RIAs outsourcing human resources, with 17% this year

compared to 12% in 2015 and 9% in 2014. Finally, we observe that outsourced bookkeeping continues to grow, increasing from 15% in 2014 to 22% in 2016. These trends in outsourced functions, reviewed in the context of the increases in services offered in Figure 4, indicate that advisors are focused on the activities that are most critical to their businesses and that it is getting increasingly efficient to outsource those functions less important to growth and client satisfaction.


Outsourced bookkeeping continues to grow, increasing from 15% in 2014 to 22% in 2016.

FIGURE 6: Trends in Services Currently Outsourced


25

20

15

10

5

0

%

Compliance

n 2014 n 2015 n 2016

HR Functions Bookkeeping

11%9%

15%15%12%

17%19%

17%

22%


ADVISORS’ MOST TIME-CONSUMING ACTIVITIESAdvisors ranked their responses on a scale of 1-5, with 1 representing the least amount of time and 5 representing the most. Responses for each activity were then averaged for the purposes of presentation. At a high level, we note how consistent the responses are in comparison to last year’s survey results. In examination of the specific activities, we observe that client meetings/service

and portfolio management remain, as one would expect, the activities on which advisors spend the most time, with average scores of 3.9 and 3.5, respectively. Client acquisition, research, and business strategy are also high priority activities for RIAs, registering responses in the 2.9 – 3.3 range and are reflective of the need to focus on the key drivers of success for an advisory practice in competitive marketplace. Taken together, the most time-consuming activities are also consistent with the

top objectives displayed in Figure 1. Other activities that require a meaningful amount of time include education, marketing, and administration. Overall, these results are very consistent with services offered and outsourced functions displayed in Figures 3 and 5, and demonstrate RIAs have a keen focus on the core areas of their business while they limit the amount of time they spend on secondary activities such as back-office operations and human resources.


At a high level, we note how consistent the responses are in comparison to last year’s survey results.

FIGURE 7: Advisors’ Most Time-Consuming Activities

Client meetings/

service

Portfolio management

Client acquisition

Business strategy

Self-education

Marketing Online marketing

3.73.9

3.5 3.5

3.2 3.33.13.2 3.1

3.02.8 2.8 2.82.9

2.7 2.7 2.72.5

2.6

2.3 2.32.2

2.0 2.0 2.02.12.11.9

1.6 1.6

2.1

Figure 7: Advisors' Most Time-Consuming Activities (2015)

Research Compliance Trading

4.5

4.0

3.5

3.0

2.5

2.0

1.5

1.0

0.5

0.0Business

administrationHuman

ResourcesEmployeetraining

Back-o�ce operations

O�ce administration

■ 2015 ■ 2016



AVERAGE ADVISORS’ WRITTEN PLANS AND PROCEDURESThe types of plans and procedures being documented range from compliance and client agreements to training and executive policies. Not surprisingly, compliance manuals and client agreements – at 88% and 85%, respectively – stand out as most important, an observation consistent with last year’s findings. However, we do note an 11-point drop in client agreements when comparing the response to last year, a change for which we do not have explanatory evidence. Additionally, errors and

omission insurance, business plan, and employee handbooks registered relatively high response rates that are generally consistent with responses from 2015. The aforementioned five categories - all of which exceed 50% response rates - indicate RIAs are increasingly aware of potential legal and regulatory risks. Having a written marketing plan shows a higher response rate in 2016 compared to 2015, which is consistent with the top scoring initiatives in Figure 1 – growing AUM and revenues, and improving marketing and business development efforts. The other notable increase is training/educational manuals, for which

we observe a 35% response rate in 2016 compared to 27% in 2015. The increase in formal training and education manuals is perhaps an indication of additional expertise required to support the increased service offerings highlighted in Figures 3 and 4.


We note an 11-point drop in client agreements when comparing the response to last year.

FIGURE 8: Average Advisors’ Written Plans and Procedures


Figure 8: Average Auditors’ Written Plans and Procedures

Marketing Plan

Employee Evaluation

Process

Succession Plan

Training/Educational

Manual

Executive Policies and Procedures

90% 88%

46% 52% 40% 42% 42% 41% 27% 35% 35% 32%

96% 85% 81% 80% 65% 66% 61% 57%

2015 2016

Client Agreements

Compliance Manual

Errors and Omissions Insurance

Business Plan Employee Handbook


DEPARTMENT OF LABOR RULING IMPACTIn light of the recent Department of Labor fiduciary rule, in this year’s survey we included questions regarding the impact on advisors’ practices. As seen in Figure 9, nearly two-thirds of RIAs report being very prepared to comply with the ruling while only 3% report being not very prepared. Arguably, the new ruling has a greater impact on IBDs and the preparedness responses may indicate that RIAs, as a group, are better positioned to handle the change. In examining the


FIGURE 10: How will the DOL Ruling Affect Your Business? (2016)

FIGURE 9: How Prepared is Your Firm to Comply with the Recent DOL Fiduciary Ruling? (2016)

responses to how the ruling will impact advisors’ businesses in Figure 10, we note that most of the impact will be felt in the form of increased paperwork, more complicated compliance, and changes to policies and procedures. Given those responses, it comes as no surprise that one-third of respondents expect higher costs associated with compliance. Nearly 30% of RIAs report that the DOL ruling will have no effect on their businesses, indicating that many advisors were already managing their operations consistent with the new guidelines.

%60

50

40

30

20

10

0Will

create more paperwork

Will cause more complicated

compliance

Will cause changes to policies and procedures

Will have no e�ect on our

busines

Will require more time spent on

financial planning

Will increase costs

Will need to bring in more technology to

manage and automate

Other

48% 48%

41%

33%

28%

22%

14%

6%

FIGURE 10: How will the DOL Ruling Affect Your Business?


64% Very Prepared

3% Not Very Prepared

33% Somewhat Prepared



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KEY TAKEAWAYS• The top initiatives for advisors in 2016 are 1) growing profits via higher AUM and revenues, and 2)

improved marketing and business development. • Improvement in client satisfaction and better business planning are relatively more important

initiatives for advisors this year. • When we review the 3-year trends in responses to the services offered question, we find three

categories with notable increases: estate planning, insurance, and charitable giving planning.• Functions increasingly likely to be outsourced by advisors include compliance, human resources, and

bookkeeping.• Activities that drive growth and performance - client service and meetings, portfolio management, and

client acquisition – are the most time consuming for advisors.• Advisors are increasingly likely to have formal marketing plans and training/educational manuals. • RIAs are well-prepared to handle the recent DOL ruling but it will likely create additional paperwork,

complicate compliance, or require changes to policies and procedures for most firms.


This White Paper was created by WealthManagement.com. LPL Financial and WealthManagement.com are separate entities. LPL Financial is not responsible for any direct or incidental loss incurred by applying any of the information offered.

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