Advisors are getting in their own way.
New research found that several psychological factors are hindering the growth of advisors’ practices, including a fear of being too pushy and feeling uncomfortable about asking existing and potential clients for new business.
However, advisors clearly need to address their fears to achieve sustainable business growth.
Last year, one-fifth of all advisors experienced a decline in assets under management according to research by the Financial Planning Association. The research, which was conducted in October 2022 with Janus Henderson, surveyed 158 financial advisors.
“New business development remains a perennial challenge for many financial advisors,” Matt Sommer, head of the specialist consulting group at Janus Henderson, said in a statement. “By examining the gaps between what advisors believe is critical to driving growth and what they have acted on, as well as the common traits among firms growing at an accelerated pace, our research with the Financial Planning Association provides all firms with actionable insights that can help put their business goals within reach.”
The companies gathered data on advisors’ strategy, planning, execution, and intangibles, including circumstantial or psychological influences on advisor growth. They then compared all data to information on the fastest-growing advisors — those who gained ten or more new clients within the previous 12-month period.
According to the survey, 93 percent of advisors described themselves as highly motivated to grow but only 12 percent strongly agreed they were comfortable with their growth rate. Growth aspirations for most advisors are much higher than what they are achieving, the authors wrote.
The study found that 57 percent of advisors brought on less than ten new clients between October 2021 and September 2022. Seventy-one percent said their average client size had less than $1 million in investable assets.
The study also found that nearly 20 percent of advisors experienced declining growth last year with another 12 percent having no change in assets. Twenty-one percent of advisors’ practices grew more than 20 percent.
The majority of advisors surveyed agreed on several factors critical to growth, such as having a clear business plan and ensuring their brand and marketing communications reflect the needs of their ideal client. However, only about 30 percent actually had a business plan in place and only 25 percent had marketing communications material that reflected their ideal client.
Despite knowing what will help drive growth, most advisors aren’t acting on it.
The FPA found several psychological reasons for this.
The number one reason was worrying about appearing pushy (43 percent). The next two reasons included how spending more time on growth would take away from an advisor’s personal life or priorities (30 percent) and feeling uncomfortable asking for new business (21 percent).
“The first impediment concerns an adviser’s comfort level with asking for the business, which,
if not developed over time, can be detrimental to business prospects. The second highlights a lifestyle choice,” the authors wrote. “Each individual needs to determine what’s most important, what they are willing to sacrifice, and what success truly means for them personally.”
FPA also looked at some circumstantial issues that impeded advisor growth. These included investing in crypto (49 percent and having competing goals that split their focus (39 percent).
The second biggest circumstantial impediment to growth was being the only person responsible for growth (48 percent). Only 18 percent of the fast-growing firms – those that brought on ten or more clients over the past 12 months – were individual advisors. But hiring is a tough decision.
“Deciding to hire is often greatly deliberated before taking the plunge. It isn’t easy to know when to make that first hire and understand the opportunity cost of waiting too long,” the authors wrote.
“As the research suggests, if advisers can shift their mindset and intentionally approach their goals for business growth strategically, they can overcome barriers that may be holding them back,” FPA president James Lee said in a statement.