Why wealth management is focused on organic growth
The wealth management industry has seen nearly 15 years of unprecedented growth, with hundreds of independent firms launched every year. Although the industry has seen consolidation recently, it still has thousands of independent firms or affiliated advisors running their own practices. During this time, the S&P 500 has grown over 700%, which put a significant wind at the back of advisors’ sails.
With this type of asset growth, firms did not have to work very hard to experience significant top-line growth. However, as the market cycles turn, firms that relied mostly on the bull market to grow are going to lag their competitors that have a well-thought-out organic growth strategy.
Thinking about growth
A well-thought-out organic growth strategy leads to sustainable and resilient growth while also costing less than acquiring inorganic growth. It is much easier working to improve your client experience to create more referrals than buying another organization, for example.
This still requires an investment, but not at the same level as the capital required to buy another advisor’s book of business or firm. Firms with the highest organic growth rates are very deliberate in their time spent on growing the business, how they craft and spend marketing resources and how they build an overall culture of growth.
The challenge of changing demographics
Organic growth is becoming more challenging, given a few demographic factors, however. The average age of advisors is approaching the mid to late 50s, with fewer younger professionals entering the industry. This leads to capacity constraints, with qualified advisors not being able to continue business development. Without succession and growth plans, those positioned with younger teams will be well-situated to organically grow as others either sell or retire.
The pending wealth transfer from the baby boomer generation is also putting strains on firms, as there is a significant amount of assets that will soon be changing generational hands. Financial advisors that have catered to the boomer generation are experiencing outflows as they are retiring and starting to withdraw resources. These firms need to quickly build a service offering for the next generation or find a way to build a pipeline of new clients. Evaluating your client journey map and how that aligns with your target market will be important to create future organic growth.
Poised for the future
Firms with a clearly defined vision, service offering and organic growth story are well positioned to increase market share, as the bull market entrepreneurs that have become complacent will contract over time. The high organic growers will also be in a better position for inorganic growth as they will be attracting other advisors, which will make them more attractive for mergers and acquisitions.
Organic growth is the foundation for a profitable, resilient and growing wealth management firm. Thinking strategically about your business, strategy, vision and client journey will be more important than ever to generate growth. Will you be on the receiving end of the upcoming tidal wave of wealth transfer or see your assets receding with the tide?
How Wipfli can help
If your wealth management firm is looking to improve on organic growth, we can help. Our team of dedicated professionals can consult with you to chart a plan for long-term success and resilience. You can trust our industry experience to help navigate the changes ahead and find a sustainable path for the future. Contact us today to get started.
