U.S. advisors felt internal squeeze on profitability in 2001

Having the time capacity to serve clients: 56.3% Having the time capacity to serve clients: 56.3% Time management: 52.0% Getting better clients: 48.3% Improving efficiency and productivity: 39.9% Profitability: 31.6% The study, conducted by Moss Adams LLP, acknowledged that many of these challenges are related to each other. The FPA is the membership organization for […]

By Jim MacDonald | September 25, 2002 | Last updated on September 25, 2002

2 min read

Having the time capacity to serve clients: 56.3%

Time management: 52.0%

Getting better clients: 48.3%

Improving efficiency and productivity: 39.9%

Profitability: 31.6%

The study, conducted by Moss Adams LLP, acknowledged that many of these challenges are related to each other.

The FPA is the membership organization for the U.S. financial planning community.

Filed by Jim MacDonald, Advisor.ca, jmacdonald@advisor.ca.

(09/24/02)

Jim MacDonald

Having the time capacity to serve clients: 56.3%
Time management: 52.0%
Getting better clients: 48.3%
Improving efficiency and productivity: 39.9%
Profitability: 31.6%

The study, conducted by Moss Adams LLP, acknowledged that many of these challenges are related to each other.

The FPA is the membership organization for the U.S. financial planning community.

Filed by Jim MacDonald, Advisor.ca, jmacdonald@advisor.ca.

(09/24/02)

Having the time capacity to serve clients: 56.3%
Time management: 52.0%
Getting better clients: 48.3%
Improving efficiency and productivity: 39.9%
Profitability: 31.6%

The study, conducted by Moss Adams LLP, acknowledged that many of these challenges are related to each other.

The FPA is the membership organization for the U.S. financial planning community.

Filed by Jim MacDonald, Advisor.ca, jmacdonald@advisor.ca.

(09/24/02)

Jim MacDonald

(September 24, 2002) The typical financial advisory firm in the United States saw a decline in its operating profit in 2001. Consequently, the firm owners also saw their pre-tax profits decrease in a year marked by volatility and turmoil on financial markets.

A survey for the Financial Planning Association of the U.S. says the operating profit margin for advice firms fell from 14.3% in fiscal year 1999 to 9.6% in 2001. The average operating profit declined from $97,184 in 1999 to $69,938 last year. The decline was attributed to factors such as higher overhead costs and other management challenges.

The squeeze on operating profits resulted in a squeeze on the compensation of firm owners. The FPA says their average compensation slipped from $144,662 in 1999 to $139,073 in 2001.

The survey, The 2002 FPA Financial Performance Study of Financial Advisory Practices, was released last week as a follow-up to a 1999 study on compensation and staffing. Approximately 560 financial advisory firms participated in the 2002 report.

The study concludes many advisors had success meeting the external challenges of weak investment markets in 2001, but struggled with certain challenges within their practices.

The median advisor began 2001 with $30 million US in client assets under administration. Researchers found that this advisor brought in an additional $5 million in client assets throughout the year, an increase of 16.7% over 2000. Compare this level of new business to the average decline of 5.3% on the value of client portfolios and the 15% drop on the S&P 500 index last year.

On the other hand, the survey says advisors struggled to create the capacity to serve more clients, find better clients, create efficient operations and control expenses. Firm owners also grappled with rising staff salaries and other overhead expenses. For example, overhead expenses for commission-based firms grew from 32.5% of total revenue in 1999 to 47.6% in 2001.

The degree to which firms were able to successfully confront these internal management challenges proved to be a measure of overall success, concluded the report. Researchers say success for advisors ultimately depended on how well they differentiated their practice from competitors, what clients they served, the services they offered and the efficiency of their businesses.

Here is what the respondents felt were the top five major challenges to their firms:

Having the time capacity to serve clients: 56.3%
Time management: 52.0%
Getting better clients: 48.3%
Improving efficiency and productivity: 39.9%
Profitability: 31.6%

The study, conducted by Moss Adams LLP, acknowledged that many of these challenges are related to each other.

The FPA is the membership organization for the U.S. financial planning community.

Filed by Jim MacDonald, Advisor.ca, jmacdonald@advisor.ca.

(09/24/02)

Jim MacDonald

The squeeze on operating profits resulted in a squeeze on the compensation of firm owners. The FPA says their average compensation slipped from $144,662 in 1999 to $139,073 in 2001.

The study concludes many advisors had success meeting the external challenges of weak investment markets in 2001, but struggled with certain challenges within their practices.

Here is what the respondents felt were the top five major challenges to their firms:

Having the time capacity to serve clients: 56.3%
Time management: 52.0%
Getting better clients: 48.3%
Improving efficiency and productivity: 39.9%
Profitability: 31.6%

The study, conducted by Moss Adams LLP, acknowledged that many of these challenges are related to each other.

The FPA is the membership organization for the U.S. financial planning community.

Filed by Jim MacDonald, Advisor.ca, jmacdonald@advisor.ca.

(09/24/02)

Jim MacDonald

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