Organic asset growth is health

The best-managed RIAs closely monitor growth by measuring net new assets and revenues, both from the addition of new clients as well as existing clients adding to their investment portfolios.

When it comes to the value and stability of your firm, new client growth is everything

A vast majority of registered investment advisors and hybrid advisors are shrinking. Most advisors have been able to ignore this because up until 2022, the decade-long bull market pushed assets under management higher.

But last year, the chickens came home to roost. Advisors saw a dramatic decline in the assets they managed and did what most people do: blamed things beyond their control. (In this instance, the lousy performance of the financial markets.) But that’s a mistake.

Further ignoring the severity of the decline, many advisors assumed they were growing because they had added at least a few new clients. However, money leaves each month through client distributions, attrition and mortality. New client adds are necessary just to tread water.

The best-managed RIAs don’t measure success based upon the financial markets. Rather, they closely monitor growth by measuring net new assets and revenues, both from the addition of new clients as well as existing clients adding to their investment portfolios.

A top-performing advisor might achieve an organic growth rate in the high single digits or even low double digits. These advisors are the outliers, however, as I would estimate that 80% show absolutely no growth, whatsoever.

Without growth, your firm is either stagnant or in decline, and that doesn’t bode well for the future of your practice.

Here are three reasons why growth is imperative.

First, as your firm grows, you will have the infrastructure to add additional services. Some of the larger, national RIAs not only provide financial planning and asset management, but also tax compliance, estate planning and documents, insurance advice, trust services and more.

Of course, the clients you brought on years ago may not expect these services from you, but the clients of today and tomorrow do. If you do not begin to offer these, new potential clients will simply head to your competitors.

Next, if your advisory practice only has three to four employees, and you’re not growing, with limited future career paths, they will not stick around. The highest performers naturally gravitate to places where opportunities (and higher salaries) abound. This means you will not only have high employee turnover, but to add insult to injury, those top performers will end up working for your competition.

Lastly, there’s firm valuations. Don’t you want to sell and retire someday? Or at least slow down and reduce your financial exposure? There have been hundreds of headlines about the astonishing selling prices that top firms are commanding in the marketplace. But the reality is, it’s only firms that are growing organically that are receiving the highest multiples.

If you are serious about having the strongest, most valuable advisory firm you can build, and with it, a greater array of options for your future, the first thing you should do is to take a deep, honest dive into your growth metrics. While many advisors will be disappointed with the results, no matter what you find it will hopefully bring a clarity that enhances your opportunities for the future.

Scott Hanson is co-founder of Allworth Financial, formerly Hanson McClain Advisors, a fee-based RIA with $15 billion in AUM.