I am going to make a bold prediction. Any day now, you will start to see the financial services media report another great year for advisory businesses. My guess is that the “average” advisor will have grown by 18-19% in 2019, and most will be thrilled with the correlating increase in assets under management (AUM) fees that go with that increase. The average advisor most likely will credit their marketing, referrals and growth plans. However, my guess is that most advisors don’t know their real growth rate — and it may not be as good as they think.

What was your growth?

Let’s start with a simple example. Say you had $100 million in AUM on Jan. 1, 2019, and you ended the year with $115 million in AUM on Dec. 31, 2019 – how would you report the increase? Using Excel, I would plug in (115-100)/100 to get 15%. Easy math even for someone like me, and 15% is a great year for almost any business. But I find many advisors and the media miss a key item: The market. What was the market’s impact on the AUM for your business?

Take a quick look at your business. If you have an average book, I would bet that the overall allocation is somewhere around 60% stocks (including a healthy allocation to international stocks in that mix) and 40% bonds. It seems that most clients fit somewhere around that 60/40. Knowing your mix can give you an idea about what the market did for your book vs what your marketing activities did.

Now, please don’t hold me to these numbers (and you can pick different benchmarks based on your allocation and accounts) but for simplicity, here's an example based on numbers from FactSet:

  • The S&P 500 Index did 31.49% in 2019
  • MSCI ACWI ex USA Index (Gross) return was 22.13%
  • The Bloomberg Barclays Global Aggregate Bond Index (AGG) was 6.84%

If you created a portfolio that was 40% S&P, 20% MSCI ACWI and 40% the AGG, you'd end up with about 19.8% before fees (or 18.8% after a 1% fee).

Therefore, that advisor who “grew” by 15% actually lost assets in 2019, but now has a false sense of confidence.Boat with rain

Now the real math starts (yours)

Go back to your book and ask, did your AUM grow by more than market impact? If so, by how much? Was the growth organic or did you take on many new clients? Look at your marketing expenses: do they correlate with the growth projections minus what the financial markets gave us?

We are going to spend a lot of time on these pages in 2020 on growth but it makes sense for all of us to start on the right foot. Are you really growing or is a rising tide raising all boats?

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Investing involves risk including possible loss of principal. International investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles or from economic or political instability in other nations. Bonds and bond funds will decrease in value as interest rates rise. Diversification may not protect against market risk.

Portfolios shown are for example only and are not intended to be a recommendation.

Index returns are for illustrative purposes only and do not represent actual fund performance. Index returns do not reflect any management fees, transaction costs or expenses. Indexes are unmanaged and one cannot invest directly in an index. Past performance does not guarantee future results. FactSet is not affiliated with SEI or its subsidiaries. SEI cannot guarantee the accuracy or completeness of the information provided by FactSet and assumes no responsibility or liability for its incompleteness or inaccuracy.

The S&P 500 Index is an unmanaged, market-weighted index that consists of 500 of the largest publicly-traded U.S. companies and is considered representative of the broad U.S. stock market. The MSCI ACWI Index (Gross) is a market-capitalization-weighted index composed of over 2,000 companies and is representative of the market structure of 46 developed- and emerging-market countries in North and South America, Europe, Africa and the Pacific Rim. The Index is calculated gross of withholding taxes, assume reinvestment of dividends and capital gains, and assume no management, custody, transaction or other expenses. The Bloomberg Barclays Global Aggregate Bond Index is an unmanaged market-capitalization-weighted benchmark, tracks the performance of investment-grade fixed-income securities denominated in 13 currencies. The Index reflects reinvestment of all distributions and changes in market prices.


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