Opportunities for advisory firms in 2023

We can learn a lot from the top performing advisory firms in 2022. With those lessons, the state of the advice industry, and overall investment markets in mind, we identify the three best opportunities for advisors in 2023.   

While you may agree or disagree with our predictions, know that clear goals, a plan, and the commitment to act can help you achieve just about anything. If you don’t have a plan for 2023, this one-page business plan template can help you get started.

These predictions are based on quantitative advisor benchmark data and qualitative experience we’ve gained from talking to advisory firms.

Opportunities

1. The rise of the ops expert
2. Disorder creates opportunity, if you’re prepared
3. The changing of the guards

The rise of the ops expert

For advisory firms to gain capacity and grow a sustainably solid infrastructure, a tech stack, processes, and workflows are essential. As firms grow, key business management roles, such as Operations Manager and COO, will become a need to have, not a nice to have.

Historically, hiring for advisory firms has been focused on two key areas: administration (i.e., client service associate) and advisory and planning roles (i.e., financial advisor). However, the need to have someone in charge of building and running core infrastructure is becoming increasingly important. We saw signals of this in the 2022 InvestmentNews Advisory Benchmark Study¹ where the COO and CEO roles were the only two roles that saw positive compensation trends over the last five years.

In general, we predict that the war for talent is only going to get fiercer. As you consider hiring, keep these tips in mind:

• Don’t wait until you are in desperate need of help; know your productivity metrics. 
• Understand your functional gaps, such as operations or business development hires with those metrics in mind.
• Don’t overestimate experience and underestimate culture. A lot can be learned where there is curiosity and passion.     

Take action:

Do you have an operationally enabled staff member? Consider how you can support their growth into a leadership role via development and a career pathing plan. If you don’t have staff, create a job description and start looking (it may be a full-time, part-time, or contracted hire).

Increasingly, we are seeing profit sharing with non-revenue producing roles such as COOs. Often COOs are hired when firms hit $5 million or more in revenue, but less senior operational specialists can be established earlier. SEI has a thriving Operational Community that may be worth joining.

Disorder creates opportunity, if you’re prepared

Market tailwinds have supported relatively easy growth and profitability over the past decade. With markets down in 2022 and uncertainty high in 2023, it’s time to get your business in order, so you can weather whatever storm comes your way. If we look back at the financial crisis of 2008, those firms that were able to manage their expenses, retain staff, and proactively communicate and serve their clients were rewarded when investment markets rallied.

Take action:

This 10-minute video provides insights into the three key metrics: profitability, productivity, and growth. You will also learn how to calculate and understand what to do with your operating profit.

The changing of the guards

"The Times They Are A-Changin'." Bob Dylan sang this song almost 60 years ago. We are in the midst of industry-changing shifts that will create opportunities for your future business if you navigate them with intention.

The first shift is in advisory firm ownership. According to Cerulli Associates, 37% of financial advisors controlling 40% of the industry’s assets are expected to retire within the next 10 years.²

Whether you want to retire, are looking to grow though acquisitions, or are an upcoming advisor looking to add value as a future partner, there is opportunity for mergers, acquisitions, and succession. Don’t wait for opportunity to land in your lap. Be clear about what you want and start networking to find it.

The second shift is in generational wealth transfer. Cerulli anticipates $84 trillion in wealth will transfer before 2045.³ The shift has already started, with assets moving from the older silent and baby boomer generations to Generation X and millennials.

Why should you care? Seventy percent of inherited assets don’t stay with the advisor and 70% of women who lose their spouse leave their advisor within the first year.⁴  

Take action:

If you’re thinking about or are in the midst of a succession - have a plan with milestones and tactics to retain your talent, communicate effectively internally and externally, and ensure it feels like a win-win-win for you, your successor(s), and clients. While it may be the first time you’ve done this and it feels intimidating, there are many advisors and experts who can help.

Consider how you will get to know and connect with those who matter to your clients. Our blog, “Get to know your future clients,” provides tips to connect with the next generation. Your next generation staff may be key in helping you to connect with and serve your future clients.

Stay tuned. Our next blog explores the greatest challenges we expect advisors to face in 2023, with actionable ideas to help you meet them.

Sources:

1. "2022 InvestmentNews Adviser Benchmarking Study" (fee required to view report), InvestmentNews, investmentnews.com.

2. “40% of Advisory Assets Will Transition in 10 Years,” Cerulli Associates, cerulli.com.

3. “U.S. High-Net-Worth and Ultra-High-Net-Worth-Markets” (fee required to view full report), Cerulli Associates, cerulli.com. 

4. "The great wealth transfer is coming" (fee required to view), InvestmentNews, investmentnews.com.