RIAs are weary after a first quarter that included the sudden rise of a pandemic and the fastest-ever bear market. Clients and portfolios required as much attention as ever and, like many, financial advisors were acclimating to working from home, under order or as a precaution.
On top of all that, asset-based fee revenue at wealth managers plunged this quarter, which could mean drastically lower compensation and even cost-cutting. (Revenue typically falls two-thirds of the broader market’s decline.)
Now, consultants face embattled RIAs that are pivoting their businesses, haggling over fees, and preparing themselves for the remainder of an opaque year. Their carts are attached to the proverbial RIA horse, no matter where it’s headed.
Marie Swift, the president and CEO of Impact Communications, remains positive about her company’s long-term future. The family-owned and operated consultant to wealth managers was founded 27 years ago and has weathered a variety of market downturns. But she does not look back fondly on those periods. During the global financial crisis in 2008 “we were really rattled and scared,” Swift told RIA Intel.
“Many of our advisory firm clients begged to get out of their contracts and some of our larger institutional clients asked us to modify our agreements as a way to keep everyone afloat during those challenging days. I expect the same will be true over the coming days as we all try to digest what the impact of the current situation is for all of our businesses,” Swift said.
Three clients have already approached Impact Communications about renegotiating the retainer fee they pay, a relatively positive sign, according to Swift. Unlike during the last bear market, instead of calling and wanting to end the business relationship, clients are interested in potentially scaling back how much they spend and focusing marketing efforts on more timely, relevant projects. She did not share which clients sought to renegotiate.
Firms like Impact often manage or advise on a long list of services including internal and external communications, website design and management, advertising, and other duties.
“I think everybody is just adjusting to the new normal. And we’re finding common ground,” Swift said.
RIAs have also recognized that the frequency, methods, and nature of their communication needs to evolve during the pandemic, which has generated new business inquiries, including two new clients starting in the coming weeks, Swift said.
Others are making similar adjustments. For example, Absolute Engagement, a Toronto-based communications consultant that works with wealth managers across North America, created an entire new program for current and prospective clients just this quarter. “My personal view is that even though the investment advice that advisors provide may not change in a crisis, their communications strategies must,” Julie Littlechild, founder and CEO of Absolute Engagement, said in a note.
Still, like RIAs, Impact has adjusted its expectations since 2020 began. At the start of the year, Swift thought she would need to hire people to meet demands (the consultant currently employs 12). That might not happen now. “It was looking like it was going to be a banner year for Impact.”
But the realities of the pandemic and market fallout are settling in. More work for consultants similar to Impact is likely to be project-based, making their own revenue forecasting more challenging, at least in the near future.
At FiComm Partners, a communications and consulting firm to wealth and asset managers, the market’s downturn has already affected what it works with clients on and how but it is not expected to significantly impact its revenue, Megan Carpenter, co-founder and CEO of FiComm, said. Her company works with 30 clients and has 15 employees based in Los Angeles and New York City.
Like FiComm’s clients, Carpenter said she is assessing her business every day and trying not to over or underreact. “It’s really just about when that time comes, when it feels like there is a more clear future, how are you going to reset your business plan? For us, it’s an opportunity to innovate and that’s what we’re doing.”
If the down market persists into the coming quarters, or beyond, and RIAs spend less on marketing, that could mean changes at FiComm. That’s a possibility. UBS Global Wealth Management said in a note Wednesday it expects a “U-shaped” economic recovery that could turn a positive corner sometime between the third quarter of 2020 and the first of 2021.
RIAs already spending money on marketing (most only spend about 2% of revenue) probably won’t pull the plug entirely, according to Carpenter. However, if revenue is down over a long period, smaller dollar amounts could take their toll. “Of course, that will impact businesses like FiComm. I just don’t think it would in a way that is materially detrimental to our future success.”
A near-term worry for both RIAs and consultants is cash on hand.
Succession Resource Group, a financial consultant to wealth managers, is hosting a webinar on an uncommon topic April 3 titled “Coronavirus Emergency Funding for Advisors - How to Manage Cash Flow.”
“One of the more significant impacts to service providers is not necessarily going to be demand, it’s going to be cash flow. Are advisors going to pay their bills on time? That’s what businesses across the country are dealing with. Our forecast looks fine but it’s all a matter of accounts receivable,” Carpenter said.
All the companies RIA Intel spoke with said the pandemic and market downturn have also led to new business inquiries, which they said was encouraging and indicative of their futures, recession or not.
“As long as the overall wealth management business doesn't collapse, then the people who rely on that will continue to thrive,” Ray Hennessey, president of JConnelly, a public relations agency, said.