The rise of Super-Ensembles signals a profound shift in the advisory industry, forcing firms to reassess their growth strategies, according to a recent Pershing study.
In Brief — What You Need to Know in 30 Seconds
There are roughly 250 super-ensemble firms in the industry. Super-ensembles not only have over $1 billion in assets but are establishing a brand, are seeking to dominate their local markets, are managed by dedicated management, have a sophisticated client value proposition, and are growing aggressively, among other attributes.
Super-ensembles are setting the standard and defining the competitive marketplace. They are the fiercest competitors among RIAs and will likely be the ultimate “consolidators” in the industry.
Super-ensembles have the highest pre-tax income per owner ($1,448,512) and revenue growth (18.6%) across firm-size categories, as well as the highest revenue ($16,348) and AUM ($2,584,808) per active client across firm-size categories.
Super-ensembles are deliberate in their growth and more likely to use business development goals and incentivize new business than their smaller peers. 80% have a defined target for non-owner lead advisors.
Super-ensembles differ in that they have a “firm-first” mentality and consider themselves to be more like “corporate” organizations than traditional partnerships. They have dedicated management who are able to be decisive in action.
In order to grow beyond the $1 billion mark, firms must do the following: define a vision that unifies the partner group, institutionalize business development, establish a sustainable ownership structure, develop a practical corporate governance system, find a way to add “lateral partners,” and learn how to grow into new markets.
For firms that desire to become a super-ensemble there are steps they can take to achieve that goal: implement the management methods of a super-ensemble, attract talent with experience working in larger organizations who can impart knowledge, develop the right culture, prioritize growth, and consider mergers or acquisitions as means of growth.
A group of 250 advisory firms is shaping the future of the industry and setting the standard for pace of growth, productivity, client service and best practices for career tracks and succession. These “super-ensemble” firms are highly regarded by their peers and seen as an example to follow. They are the employers of choice for talented people joining the industry. Increasingly, they are becoming a well-known brand that clients recognize. Some are expanding in multiple markets and creating national presence. All are successful and powerful competitors that every advisor needs to be aware of.
Super-ensembles are firms from which every business owner can learn, and their business practices are quickly becoming the standard to follow for the rest of the industry.
Pershing Advisor Solutions
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Super-ensembles are firms from which every business owner can learn, and their business practices are quickly becoming the standard to follow for the rest of the industry. This is why we believe it is important to study and understand super-ensembles — who they are, where they came from and where they are going. This paper will examine these questions and find answers that can help firms of every size learn from the largest firms in the industry and define their strategy for competing against them.
Growth does not stop at a billion. On the contrary, most super-ensembles are asking, “How do we get to $5 billion?” The largest firms of today stand at $15 to $20 billion in AUM. There are only 28 firms with over $5 billion in AUM according to a list compiled and published by Financial Advisor magazine4. However, if this rate of growth continues (23.7% growth in AUM in 2014 for super-ensembles), we can expect to see today’s $2 billion firms reach $5 billion in only five years. That means another 70 to 100 firms will reach the $5 billion level by 2020 based on growth and math alone. According to the 2014 InvestmentNews Study, 47% of super-ensembles say their No. 1 strategic priority is revenue growth, while 12% say they are focused on mergers and acquisitions. Twenty-nine percent list organizational development—the internal view of growth—as their focus. Studying how the largest firms in the industry deal with growth reveals the path that a super-ensemble must take to reach $5 billion:
Define a vision that unifies the partner group
Institutionalize business development
Establish a sustainable ownership structure
Develop a practical corporate governance mechanism
Find a way to add “lateral partners”
Learn to grow into new markets, perhaps through mergers and acquisitions