JERSEY CITY, N.J., Nov. 20, 2019 — The financial advisory business has been on a 10-year bull run with growing revenue, assets and profits. But according to the recently published 2019 Adviser Compensation & Staffing Study, sponsored by BNY Mellon's Pershing ("Pershing"), cracks are beginning to emerge.
This year's study shows that advisory firms continue to drive increased revenue and higher profitability and are generating substantial income for owners. However, productivity is largely flat and compensation is barely moving.
According to the study, conducted by InvestmentNews Research, firms of all sizes experienced double-digit growth with median growth rate reaching 11% in 2018—more than double the growth experienced in 2016. Super ensembles—firms with revenue greater than $10 million—led the pack, with a growth rate of 15%. Firm profitability was also strong, with high revenue growth, flat overhead expenses and lower direct expenses.
The study indicates that revenue increases have not benefited all employees equally in terms of compensation. Executives, particularly CEOs and Lead Advisors, received the largest compensation increases since 2017 with a 9% and a 4.5% cumulative average growth rate (CAGR), respectively. Meanwhile, most other positions experienced modest compensation gains at about 2% CAGR during the same period.
The study also showed that team productivity remained flat. The metrics, revenue-per-staff ($253K) and revenue-per-professional ($464K), have remained mostly unchanged since 2014.
"Stagnant productivity could be a positive indicator if a firm is investing in new talent as recent hires often need time to acclimate and achieve better productivity," said Christina Townsend, director, Advisor Solutions at Pershing. "However, if you have a mature team that's firing on all cylinders—and you have not invested in process improvement or automation to help scale service—this could be cause for concern."
While the study's findings provide a view into the health of the industry overall, they also provide valuable insights for business owners. Advisors can use the study's findings as benchmarks to compare their business performance metrics. The data can help assess the health of a firm and identify potential weaknesses.
"In addition to using the study data as a benchmark, advisors should also compare their most recent metrics to their best year's performance and identify trends over the past five years," added Townsend. "Strong market performance can sometimes mask deep-rooted issues in an advisory business."
Other highlights from the study include:
About the 2019 Adviser Compensation & Staffing Study
The 2019 Adviser Compensation & Staffing Study, sponsored by BNY Mellon's Pershing, was conducted by InvestmentNews Research between April 11, 2019, and June 19, 2019, among 289 firms who supplied detailed financial information for their organizations. The data collected was analyzed and assessed by InvestmentNews Research and The Ensemble Practice.
About BNY Mellon's Pershing
BNY Mellon's Pershing and its affiliates provide advisors, broker-dealers, family offices, hedge fund and '40 Act fund managers, registered investment advisor firms and wealth managers with a broad suite of global financial business solutions. Many of the world's most sophisticated and successful financial services firms rely on Pershing for clearing and custody, investment and retirement solutions, technology, enterprise data management, trading services, prime brokerage, managed account technology and operations and business consulting. Pershing helps clients improve profitability and drive growth, create capacity and efficiency, attract and retain talent, and manage risk and regulation. With a network of offices worldwide, Pershing provides business-to-business solutions to clients representing more than seven million investor accounts globally. Pershing LLC (member FINRA, NYSE, SIPC) is a BNY Mellon company. Professionally advised managed accounts are offered through its affiliate, Lockwood Advisors, Inc., which is an investment adviser registered in the United States under the Investment Advisers Act of 1940. Additional information is available on pershing.com, or follow us on Twitter @Pershing.
About BNY Mellon
BNY Mellon is a global investments company dedicated to helping its clients manage and service their financial assets throughout the investment lifecycle. Whether providing financial services for institutions, corporations or individual investors, BNY Mellon delivers informed investment management and investment services in 35 countries. As of Sept. 30, 2019, BNY Mellon had $35.8 trillion in assets under custody and/or administration, and $1.9 trillion in assets under management. BNY Mellon can act as a single point of contact for clients looking to create, trade, hold, manage, service, distribute or restructure investments. BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation (NYSE: BK). Additional information is available on www.bnymellon.com. Follow us on Twitter @BNYMellon or visit our newsroom at www.bnymellon.com/newsroom for the latest company news.