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Hosted by Financial Advisor Coach, Ray Sclafani, "Building The Billion Dollar Business" is the ultimate podcast for financial advisors seeking to elevate their practice. Each episode features deep dives into actionable advice and exclusive interviews with top professionals in the financial services industry. Tune in to unlock your potential and build a successful, enduring financial advisory practice.
Ray Sclafani (00:00)
Welcome to building the billion dollar business, the podcast where we dive deep into the strategies, insights and stories behind the world's most successful financial advisors and introduce content and actionable ideas to fuel your growth. Together, we'll unlock the methods, tactics and mindset shifts that set the top 1 % apart from the rest. I'm Ray Schlaffani, and I'll be your host.
So let's look at nine trends that will impact the future of your firm. Given the ever evolving advisory landscape, staying ahead of the curve can be a difficult challenge. As we look forward to the balance of this year and beyond, several key trends appear poised to reshape the industry and redefine how elite advisors operate. From technology advancements to shifting market dynamics, I wanna take a look at nine trends you'll need to embrace if you hope to thrive in the years ahead.
Consider sharing these with your leadership team and discuss each trend as a group to ensure your firm is well positioned. Margin compression, with expenses related to running the business rising, the cost of taking a client to dinner, the E &O insurance, the licensing, the compliance, technology, human capital expenses, there will continue to be mounting pressure on these operating expenses. And for those firms without well -defined structures and discipline,
to maintain time allocated budgets related to advising clients, there's a second type of margin compression most people don't pay attention to. It's what I call the carbon monoxide of margin compression. Unlike rising costs, which you see daily, the margin compression that's the carbon monoxide you don't see, you don't smell, but the team feels it. This is where the clients are being over -served for the fees they're collecting. Firms that lack a discipline around segmentation
time allocation per segment, the right advisor advising the right segment. This is exactly what I'm talking about. To combat this margin compression, you'll want to employ the 40 -30 -30 rule to closely benchmark your P &L and ensure the sustainability and profitability of your firm. Here's how the rule holds. 40 % of gross revenues is allocated toward professional staff expenses. I'm not a big fan of the word staff, but I...
Use the terminology that you'll find in industry benchmarking studies so that it's really clear and consistent. These are the salaries, benefits, and any other compensation for those professionals on your team who are front stage advising clients, the advisors, planners, or analysts, anybody who's in the business of advising the client. Another 30 % should be earmarked for operating expenses related to running the business, the rent, utilities, tech, marketing, support staff.
And then the remaining 30 % is designated for operating profits. Adhering to the 40 -30 -30 rule will help you effectively manage resources, maintain operational efficiency, and then ultimately achieve sustainable growth while delivering high quality services to the clients. The second is the rising labor costs. As labor markets tighten and demand for skilled professionals heats up,
advisory firms struggle with rising labor costs. So to mitigate this challenge, take some time to revisit and potentially upgrade your compensation structures. You can also invest in additional training and development programs and adopt newer technology solutions that can automate routine tasks and improve firm -wide productivity. There's the training of lead advisors. This is a trend as the search for lead advisor talent grows more and more fierce.
Having a clearly articulated succession plan has become an increasingly crucial differentiator for leading advisory firms. With more and more firm principals and senior advisors approaching retirement age, training and developing the next generation must be a priority if you wish to attract the best talent to your firm and ensure continuity, client retention, and seamless transition.
providing a pathway to achieving valuable technical designations like CFP, CFA, CPWA, as well as training future leaders to grow the business, such as Glenn Madsen's business development and productivity training offered through Sandler. All are terrific ways to attract and cultivate future lead advisors. There's the fourth, private equity investors. The financial advisory sector generates significant interest
and investment from PE firms lured by strong fundamentals and sustained AUM growth. This injection of investment capital into advisory firms is driving consolidation and fueling expansion. Although surging valuation multiples have been a nice byproduct of this capital influx, it's the innovation that private equity enables, which is most helping to drive growth. PE in the advisory space isn't a passing fad. I believe it's here to stay.
So it's important to familiarize yourself with how PE partnerships are typically structured and how they can help you scale your business. David DeVos and companies Capital Works can offer insights and support as you explore this potential avenue. I believe you're going to see long life capital partners, sovereign funds, insurance companies, family offices, get way more involved in this business because it's a subscription business. The fee on AUM growth is such
that it's durable, it's repeatable, and it's driving these multiples higher. Okay, number five is succession planning. This trend is a big trend for the future given that the average advisor in the US today is approximately 56 years old. Succession planning has become not only the top priority for firms looking to secure their future viability,
It's also this internal succession, it's driving mergers and acquisitions. So you must develop a comprehensive succession plan to facilitate a smooth transition and preserve client relationships. ClientWise's Success in Succession program offers an ideal starting place. So along with guiding to prepare the next generation to take the reins successfully, the program addresses a host of other challenges from deciding when and to whom
you should consider selling equity to understand the drivers of value, determining the optimal business structure, how and when to seek out an evaluation, not just a valuation and ways to secure favorable financing. Okay, number six trend are these next generation partners. Clients have certain preferences and they're evolving. Financial advisory firms increasingly recognize the importance of diversity and inclusion.
including integrating next -gen partners. We're seeing lots more diversity in leadership, which provides fresh perspective to the business, helping drive innovation and better position your firm to cater to changing client demographics. Diversity by race, age, and gender, and diversity of thought are key trends emerging among next -generation partners.
If this is a key area of interest, you might want to check out Claire Meyer's consulting recruiting as a service as the RAAs, the RAS. They can help set up a recruiting infrastructure for your firm and work closely with your leaders to calibrate candidate profiles and then source screen and interview and manage the selection process for any roles in your organization. Okay, the seventh trend that seems to be emerging is this multiple expansion.
The demand for financial advisory services is rising. This seems to be leading to multiple expansion opportunities for business in this advisory space, but only if you're growing revenue and profits and improving the quality of earnings for your firm. Let me repeat, the quality of earnings for your firm. The overwhelming majority of RIA firms in the U .S. are riding the wave of the capital market expansion and the increase in return on investment.
When you've got a AUM model and a fee on AUM, and that fee on AUM is tied to the capital markets and the capital markets are rising, it's created this false sense of growth. Strip out market performance and look at the organic growth, the net new assets, the net new revenue that you're acquiring as a firm. As investors place a premium on firms with strong growth prospects, robust client relationships and differentiated service offerings,
it's important to focus on enhancing your value proposition and position your firm as an attractive investment target. John Fury and his team at Advisor Growth Strategies are doing good work to help firms accelerate growth and maximize outcomes inside and outside the &A marketplace. The eighth trend we're witnessing is a more rigorous compliance oversight. Regulatory requirements continue to evolve, demanding increasingly
rigorous compliance and risk management oversight. So to meet this demand, your organization must develop a robust compliance framework, stay abreast of regulatory changes, and prioritize ongoing training and education internally to ensure all team members adhere to industry standards and safeguard client interests. Increasingly, advisors are turning to expert regulatory and compliance consulting firms like Brian Hamburger's Market Council,
to outsource much of the regulatory heavy lifting so that advisors can maximize their time focusing on client relationships. And coming rapidly to a theater near you, expect increased regulation and requirements to protect your firm, team, and clients from cybersecurity threats. Regardless of firm size, all firms will need to take increased actions to reduce the likelihood of a cyber intrusion while quickly detecting an intrusion.
and ensuring that your organization is prepared if an intrusion occurs. Team members are the top targets. Ultimately, maximizing your firm's resilience will become more vital. Mark Hurley's new company, Digital Privacy and Protection, provides services to help you better be prepared. Hurley's new company, Digital Privacy and Protection, they offer valuable support for your clients and it'll increase your value proposition long run.
The ninth trend that we see is advancing technology, this artificial intelligence AI. This advanced technology is going to transform financial advisor operations from portfolio management and risk assessment to client communication and marketing. By harnessing the power of AI driven insights, advisors today can now deliver more personalized advice, improve investment outcomes and enhance client engagement.
pay close attention to the insights from Joel Bruckenstein and his team at T3 Consulting. I feel like they've got the best finger on the pulse of AI and its current and future potential impact on advisory businesses. So if you hope to compete and thrive amid a rapidly changing advisory landscape, you must adapt and embrace these key nine trends. Be willing to leverage innovation, commit to investing in talent development, and prioritize client -centric strategies.
you'll be well on the way to success in this year and beyond. For a list of links to all the firms and people that I mentioned in this particular episode, check out the show notes and you'll find them there. With each of our episodes, I'd be sure to include coaching questions. They're future oriented, they're open -ended, and they're really designed to get you and your leadership team having a conversation about the short bit of content that we cover in these episodes. So the first coaching question would be on a scale of one to 10.
How disciplined is your team at defining, measuring and managing time that's been intentionally allocated to each segment of client advice? That's that carbon monoxide of margin compression I talked about earlier. The second, how much your team improve its people development plan? Third, what do you need to do to develop the future leaders of your firm more effectively? Fourth, how have you engaged clients in your succession planning strategy?
If you don't have a continuity plan and a written formal succession plan, and you're not able to name your successors, both internally to team members and externally to clients, you've got some work to do as a fiduciary doing what's in the best interest of your client. It's the ripple effect. It's the multi -generational firm. It's the enduring business. Number five, how will you improve the value proposition of your firm to remain competitive? Thanks for tuning in.
And that's a wrap. Until next time, this is Ray Sglafani. Keep building, growing and striving for greatness. Together, we'll redefine what's possible in the world of wealth management. Be sure to check back for our latest episode and article. Have a great week.
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