Team-Based Advisors Outgrowing Solo Firms — Evening Brief – 06.14.2024
Team-based financial advisory practices are outperforming solo businesses in key categories such as assets under management, organic growth, service offerings, and productivity, according to research from Cerulli Associates and Osaic, Inc.
The study, “Top-Performing Teams: Exploring the Benefits and Approaches of Building a Team-Based Advisory Practice,” revealed that nearly half (46%) of advisors now operate in a team-based structure.
The trend is even more obvious among the largest advisory shops, with 94.5% of those with more than $500 million in assets under management employing a team-based approach, compared to only 5.5% who work alone.
According to the research, teams profit from streamlined resources, processes, and services and function at higher productivity levels than solo operations.
Cerulli reports that team-based practices had a median asset value of $100 million per advisor, compared to $72 million for solo practices. In addition, team-based businesses service a larger core market, with an average client size of $1.6 million versus $1 million for solo practitioners.
“One of the key benefits of multi-advisor teams is the diversity of complementary skills, experience, and expertise,” said Asher Cheses, director at Cerulli Associates. “Combining each team member’s experience allows practices to leverage their individual strengths and provide specialized services, including lending, estate planning, tax services.”
Advisors aiming to move “upmarket” or enter a new client segment have found success by forming teams to expand their service offerings to include more financial planning and high-net-worth (HNW) services. Solo advisors provide an average of 4.5 financial planning services and 2.2 HNW services, compared to 4.7 and 2.9 in team-based businesses.
An expanded set of services typically results in higher levels of walletshare, as clients tend to aggregate held-away assets with teams that can deliver comprehensive services, Cerulli observed.
While a team-based structure may provide a significant advantage, the research highlighted several challenges, including potential concerns with culture, leadership, integrating team members, and determining the most effective remuneration schemes.
“In choosing their team structure, advisors should aim to maximize their drivers of growth while limiting existing areas of efficiency within their practice. Teaming creates natural opportunities to retool existing processes and establish new frameworks for success,” said Stephen Caruso, senior analyst at Cerulli Associates.