A year of profitability married with caution

investmentnews.com:

Last year was a lot like a Sunday evening — pleasant and satisfying, but with the clear and gathering notion of hard work ahead. Losses in the financial markets and continued inflation created the expectation over the year that dire times may be on the horizon. As a result, we saw a year of profitability, but also one of cautious spending and hiring.  

The results of the 2023 InvestmentNews Advisor Benchmarking Study not only provide a benchmark for firms that have business characteristics similar to those of the participants, but also an opportunity to examine the forces shaping the results and the strategies and tactics employed by advisory firms in the pursuit of faster growth and better profitability.  

The fortunes of financial advisory firms are closely linked to the returns on investment generated by financial markets, and it is therefore no surprise that 2022 was a year of declining assets under management.   

The firms participating in the 2023 study saw the assets they manage on behalf of their clients decline by an average of 7.4%. By comparison, the S&P 500 Index total return declined 18.1% over the year. The strong correlation between the two is evident, and anyone with experience in the industry will find that relationship to be logical and perhaps inevitable. Still, long-term success for an advisory firm means finding ways to do a little bit better than what the financial markets would deliver.   

The quarterly billing of advisory fees substantially mitigated the overall revenue effect of the decline in assets. In fact, the firms in the study experienced a 5.0% median increase in revenue in 2022. This is because the first quarter of 2022 was most often billed to clients on Jan. 1, when the markets were