Forge Your Path Build Your Business Maximize Your Value · 2019. 10. 21. · Forge Your Path Build Your Business Maximize Your Value. Contents ... the expected sale price of your

2018 Advisor Benchmarking and Practice Management Study: Lessons for Cultivating Value from Top Advisors

Forge Your PathBuild Your BusinessMaximize Your Value

ContentsIntroduction .......................................................................................2

Key Findings ......................................................................................3

Measurement Terms and Methodology ............................................4

Asset Concentration ..........................................................................5

Expense Management ......................................................................7

LPL/Partner Services ........................................................................8

Business Planning ........................................................................... 12

Practice Acquisitions .......................................................................16

Growth Activity and Preferred Growth Methods ............................18

Technology and Social Media ..........................................................24

Advisor Characteristics ....................................................................27

Practice Characteristics ...................................................................30

Business Mix ...................................................................................33

The views and opinions expressed by the LPL Financial advisor(s) are as of the date of the publication. These views may not be representative of the views of other Financial advisors and are not indicative of future performance or success. Neither LPL Financial nor the LPL Financial advisor can be held responsible for any direct or incidental loss incurred by applying any of the information offered.

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As you work day to day to help your clients meet their goals and secure their financial futures, it’s important to keep a close watch on the growth and value of your firm as you plan for your own future.

Ensuring the long-term success of your practice—increasing revenue, expanding your client list, and maximizing your practice’s value for when you exit—takes proper planning, strategic thinking, and the time to conduct each effectively. A great place to begin is to review what many of LPL Financial’s most successful advisors are doing to manage their operations, strengthen relationships, and grow the value of their practices.

This study is the latest in our series of in-depth benchmarking and practice management examinations, in which we focus on your most successful peers within LPL’s family of advisors and what you can learn from them. Our previous studies centered on the sustainability of your business, the exchange of ideas and best practices, and a deep examination of strategy, behavior, and the use of practice management tools. The 2018 edition focuses on the growth of your practice and which activities can drive value. Participating advisors shared insights that can be implemented by you to simplify, strengthen, and grow your business.

WHAT WE FOUND

The results of the 2018 Advisor Benchmarking and Practice Management Study provide an inside glance at successful business tactics and noteworthy observations to help you:

� Enhance and preserve business value.

� Observe trends and practices best suited for business growth.

� Evaluate possibilities for practice simplification and streamlining.

� Understand your peers’ perspectives on future opportunities and current successes.

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Key FindingsThe 2018 Advisor Benchmarking and Practice Management Study indicates that advisors who apply strategic planning to their businesses, outsource non-core office functions, and focus on revenue-generating activities are more likely to grow their businesses and the values of their practices.

Each of these key findings has been analyzed independently. While engagement of any individual principle is not a guarantee for growth, all correspond with the practices of top advisors and can be applied to your business—and potentially have a positive impact when combined in your strategic planning.

1 Asset Concentration: Heavy concentration of assets with top clients can reduce value because of the greater potential impact of client loss.

2 Expense Management: Practices that maintain expense structures (excluding owner’s compensation) of less than 50% of revenues cultivate greater value.

3 LPL/Partner Services: Practices that leverage LPL or third-party services to support various business functions such as administrative assistance, technology, and research generate greater business value and growth.

4 Business Planning: Practices that routinely assess their business for efficiency, monitor value, and utilize defined business plans build more valuable businesses that experience greater growth.

5 Practice Acquisitions: A reliable way to boost business value—in addition to intended growth benefits—is to acquire other practices.

6 Growth Activity and Preferred Growth Methods: Advisors who focus more time on activities intended to grow their businesses outperform their peers in net new assets (NNA) and revenue growth. Acquiring new clients and other practices, expanding current client wallet share, and targeting niche markets have shown to be effective methods for achieving growth.

7 Technology and Social Media: Increased use of financial planning technology enhances business value, and greater and more effective social media use translates to higher growth rates.

8 Advisor Characteristics: The value of a practice tends to be influenced by the advisors’ experience and age.

9 Practice Characteristics: The more aspects of a business that remain intact after a sale, the greater its value. In addition, larger practices are more valuable than smaller practices.

10 Business Mix: Recurring revenue—especially advisory business—greatly enhances business value compared with transactional business. In addition, advisors who transitioned to advisory from brokerage, when appropriate for clients, see greater growth.

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2018 ADVISOR BENCHMARKING AND PRACTICE MANAGEMENT STUDY

MEASUREMENT TERMS

Unless otherwise noted, the following terms referenced are consistent with the definitions listed below:

� Valuation refers to the estimated practice sale price as determined by LPL’s proprietary valuation model. For simplicity and comparability, it is represented herein as a multiple of trailing 12-month revenue.

� Average assets refers to the average of trailing three-year (2014 to 2016) year-end AUM.

� Average revenue refers to the average of trailing three-year (2014 to 2016) full-year revenue.

� Return on assets refers to the average of revenue divided by AUM for each of the three trailing years (2014 to 2016).

� NNA growth refers to trailing three-year (2014 to 2016) net new asset compound annual growth rate.

� Revenue growth refers to trailing three-year (2014 to 2016) revenue compound annual growth rate.

METHODOLOGY

The 2018 Advisor Benchmarking and Practice Management Study is a compilation of existing LPL data sets and is largely generated from a survey conducted in 2017 with the input of 716 LPL advisors. The advisors shared insights pertaining to practice design, office management, client service, business development, and forward-looking strategy. Details of the survey include:

� Advisor participation: 2,214 advisors received an invitation to the written survey. Of these advisors, 716 completed the survey, a 32% participation rate.

� Average age: 54

� Gender: Ninety percent of respondents were male and ten percent were female.

� 2016 average revenue: Participating advisors had average revenue of $665,800.

� 2016 average return on assets: Participating advisors had an average return on assets of 0.79% (calculated as 2016 average revenue divided by 2016 average AUM).

� Data aggregation: Survey results were entered into a database for review and statistically aggregated by LPL business analysts. Both medians and averages were examined in the analysis of study findings. Due to the size of the sample, distributions were not heavily skewed. Averages were more reflective of study findings and therefore used for reporting.

� All individual advisor information provided in the study is strictly confidential. Data gathered has been aggregated and consolidated strictly for reporting purposes.

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Less Than 45%

Greater Than 45%

Valuation

1.90 1.92 1.94 1.96 1.98 2.00 2.02 2.04 2.06 2.08

Top 10% Client Asset Concentration

Average Revenue ($ Thousands) Revenue Growth

Revenue Growth by Top 10% Client Asset Concentration

0

200

400

600

800

Avg.

Rev

enue

($

Thou

sand

s)

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

Reve

nue

Grow

th

Less Than 30%

30 to 60% Greater Than 60%

Average AUM ($ Millions) NNA Growth

Less Than 30%

30 to 60% Greater Than 60%

Avg.

AUM

($

Mill

ions

)

0

20

40

60

80

100

120

NNA

Grow

th

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

NNA Growth by Top 10% Client Asset Concentration

Asset ConcentrationAim for a more even distribution.

Having a disproportionately large share of assets with your top clients can affect your value. If the top 10% of your clients account for less than 45% of your assets (the industry average), you may expect a higher value for your business. When more assets are concentrated with fewer clients, the risk of loss associated with each relationship is heightened, which can affect the expected sale price of your practice.

� Maintaining less than 45% of assets with your top 10% of clients can increase your firm’s value by more than 5%.

� Your practice is likely to grow faster when fewer assets are concentrated with your top clients.

� Reduce the risk of loss by spreading your assets across a greater spectrum of clients, which helps to balance the distribution across your client portfolio.

� Growing your client base and increasing wallet share with existing clients can help distribute your assets more evenly.

� Engage in multigenerational planning and boost the likelihood of keeping those assets as they pass down to heirs and family members, thus balancing asset distribution across more clients.

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WE CAN HELP:

LPL offers many strategies for achieving these goals, such as growing your client list and increasing wallet share. Visit the Resource Center and click on Your Business | Manage Your Business for a wide variety of resources such as training, learning opportunities, best practices, marketing, and more. The LPL Financial Planning Group is also available to provide guidance with your financial planning questions, including setting up your financial planning service offering, using WealthVision™ financial planning software, and developing strategies for clients. To learn more about multigenerational, retirement, and estate planning, click on Investment and Planning Resources | Financial Planning.

“ Maybe the people you’re talking to don’t have $1 million, so they aren’t your ideal client. But it’s okay because you’re going to treat them with dignity, respect, and care anyway — you want them to want you to be their advisor. Maybe someone has $200,000, but that person’s parents are 85 and own a home in Palos Verdes, CA. This person in the next two years or five years is going to inherit a $4 million home. You’re not marketing for the next month, but for the next decade.”

Dryden Pence, Pence Wealth Management

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Expense ManagementCost management + business investment = higher value.

Keeping a close eye on your expenses can have a positive impact on your ultimate value. The survey found that advisors who keep their costs relatively low while still investing in their business realize greater value for their practices.

� Practices with expenses between 25% and 50% of total revenue cultivate higher value than their counterparts.

� With this ideal expense ratio, the valuation multiple increases by 8% over lower expense practices and 9.7% over higher expense practices.

� Practices with inadequate business investment or an overburdened expense structure can drive these decreases in value.

WE CAN HELP:

LPL’s Business Analysis & Valuation Services team within Strategic Business Solutions offers an analysis of your profit and loss statement, where your production mix, revenues, profit margins, and local operating costs are compared with the average LPL advisor, similar-sized advisors, the financial services industry, and other metrics. These analyses allow you to benchmark yourself against your peers and find opportunities to modify your business to compete and thrive. Visit the Resource Center and search for “Business Analysis.”

0% to 25% 25% to 50% 50% to 100%1.80

1.85

1.90

1.95

2.00

2.05

2.10

2.15Valuation by Local Expense % of Revenue

Valuation

8

LPL and Partner ServicesReach outside your walls for help.

Outsource routine business tasks and watch your value grow. The survey found that advisors who focus on their core competencies—such as new client engagement, retention, and relationship management—cultivate higher values for their practices. The more functions you can outsource, the more you can focus on the activities that drive revenue.

� Practices that outsourced operations, human resources, and technology saw dramatic increases in their valuation.

� Practices that outsourced two or more routine functions also saw higher growth in net new assets (NNA) and revenue.

Operations/Human Resources

Technology Research/Investment Mgmt

With Outsourcing Without Outsourcing

1.70 1.80 1.90 2.00 2.10 2.20 2.30 2.40

Valuation byOutsourced Function

Revenue Growth

Revenue Growth by Number of Functions Outsourced

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

0 1 to 2 More Than 2

NNA Growth

0 1 to 2 More Than 2 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% 5.5%

NNA Growth by Number of Functions Outsourced

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Different outsourced functions have different impacts or potential benefits on revenue growth.

� Advisors who shifted more than 50% of their advisory business to LPL’s centrally managed platforms more than tripled the NNA growth.

� Advisors who outsource more than two-thirds of their advisory business to LPL’s centrally managed platforms achieve twice as much NNA growth as those who do not.

With Outsourcing Without Outsourcing

0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0%

Compliance/Legal VirtualAdmin.

Operation/Human Resources

Marketing Research/Investment Management

Revenue Growth by Outsourced Function

NNA Growth

NNA Growth by Shift from Advisor-Driven toCentrally Managed Advisory Platforms

Up to 50% Shift 50% to 100% Shift 0.0% 2.0% 4.0% 6.0% 8.0%

10.0% 12.0% 14.0% 16.0%

NNA Growth

33% or Less 67% or More 0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

NNA Growth by Centrally ManagedAdvisory Platform Weighting

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This chart illustrates which services are outsourced most by LPL advisors and which services present the greatest opportunity for outsourcing: administrative assistance, trading/rebalancing, and operations/HR. Each can have a positive effect on your growth and value due to the time outsourcing frees up for you to spend on revenue-generating and value-creating activities.

“ One-third of my business is now Model Wealth Portfolios (MWP). Moving from Strategic Asset Management (SAM) to MWP was life-changing because we do very little trading. Now that we’ve done so much of the conversions into these, the reviews are getting back to the important thing, which is the lifestyle and goals of the client, not just, ‘You need to go from A to B to C.’”

Judy VanArsdale, Lakeview Wealth Management

Outsourcing Rate

0%

10%

20%

30%

40%

50%

Accounting/

Finance Technology

Research

Compliance/

Legal Marketing

No Outsourcin

g

Operations/

Human Resources

Trading/

Rebalancing

Administrative

Other

Respondent Outsourcing Rates

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WE CAN HELP:

LPL can help you with outsourcing a wide variety of services, including research, marketing, virtual admin, case consulting (insurance, financial planning, and high-net-worth consulting, etc.), and much more. Visit the Resource Center to learn more:

� LPL Research: News & Research | Research

� LPL Marketing: Your Business | Manage Your Business | Marketing

� LPL Insurance: Investment and Planning Solutions | Products | Insurance

� Financial Planning Group: Investment and Planning Solutions | Client Goal | Financial Planning

� Private Client: Investment and Planning Solutions | Client Goal | LPL Private Client

� Technology Solutions: Technology

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Business PlanningSet your goals and build a plan to achieve them.

Planning ahead can boost the value of your practice. Advisors who regularly assess their business for efficiency and actively plan their business strategy, goals, and processes tend to foster more valuable practices and realize greater growth.

� Know the value of your business and leverage an equity management process to help monitor and build more value into your practice.

� Take advantage of valuation support offered through LPL’s Strategic Business Solutions team, including acquisition valuations, succession planning valuations, and valuation services for identifying and executing strategies to enrich business value.

� When an equity management system is employed, the valuation is increased by 6%.

NNA Growth

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

Have 5-Year Business Plan

Do Not Have 5-Year Business Plan

NNA Growth by De�ned 5-Year Business Plan

Valuation

Very Frequently or Frequently

Occasionally Rarely or Never

1.881.901.921.941.961.982.002.022.042.062.08

Valuation by Outsourcing of Non-CoreActivity Assessment Frequency

EMS No EMS

Valuation

1.901.921.941.961.982.002.022.042.062.082.102.12

Valuation by Equity Management System Usage

13


Routine assessments of efficiency can foster the growth of NNA and revenue. But be careful not to “overplan.” The data demonstrates a point where benefits decline with too-frequent assessments.

“ Business planning is a great way to take a step back and set realistic goals for the year. It’s essential for growth and business success. The most important part is to look at the past year and make business decisions to fill any gaps or voids that are inhibiting your growth.

Whether you’re a one-person team or a 15-person team, it’s important to include all members’ input into the business planning decisions. This allows them to be part of the goal-setting process and hold each other accountable in reaching your firm’s goals. Each team member has different strengths, and what they bring to the table in business planning is important in creating the ultimate client experience, which translates into the firm’s current and future growth.”

Joseph D. Altic, PWM Planning

NNA Growth

NNA Growth by Outsourcing ofNon-Core Activity Assessment Frequency

-3.0% -2.0% -1.0% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0%

VeryFrequently

Frequently Occasionally Rarely Never

Revenue Growth

VeryFrequently

Frequently Occasionally Rarely Never -2.0% -1.0% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0%

Revenue Growth by Outsourcing ofNon-Core Activity Assessment Frequency

14


Business Planning: Survey Statistics

A majority of the advisors surveyed say they occasionally assess their businesses for efficiency gains, which leaves room for more frequent evaluation and the potential for benefits in valuation and growth. A crucial step in cultivating value for your business is understanding the current value and what drives it. A great first step is to determine the value of your business by consulting with LPL’s Strategic Business Solutions team.

� According to the survey results, 40% of the advisors who participated would benefit from another look at their business value and its drivers.

Frequently24%

Rarely21%

Occasionally 47%

Very Frequently 4%Never 4%

Outsourcing/Removal of Non-Core Services Assessment Frequency

Yes 60%

No 18%

Unsure 22%

Know Current Business Valuation?

15


More advisors say they understand what drives valuation than those who say they understand their current business value. So while they may be engaging in activities that are intended to boost value, assessments are needed periodically to understand if those efforts are working.

� Less than half of respondents utilize a five-year business plan.

� Planning, efficiency, and valuation go hand in hand with executing toward medium-term goals such as growth, profitability, efficiency, and protection of equity.

WE CAN HELP:

LPL’s Valuation Services program assesses your practice for potential areas of opportunity to increase equity value in your business and can help you develop and carry out a business plan. Visit the Resource Center and click on Your Business | Advisor Support Services | Business Analysis or email [email protected].

Very Well33%

OK 20%

Well 41%

Don’t Understand 1%Not Well 5%

Business Valuation Drivers Understanding

Yes40.2%

No 51.3%

Unsure 8.5%

De�ned 5-YearBusiness Plan

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Practice AcquisitionsAcquire other practices and grow your value.

Our survey discovered that one of the fastest and most reliable ways to cultivate greater business value is to acquire other practices. Unsurprisingly, advisors who acquire other practices achieve greater NNA and revenue growth.

Acquisitions No Acquisitions

Valuation

1.75 1.85 1.95 2.05 2.15 2.25 2.35 2.45

Valuation by Acquisition Activity

Revenue Growth

0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0%

Acquisitions No Acquisitions

Revenue Growth by Acquisition Activity

NNA Growth

Acquisitions No Acquisitions 0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

NNA Growth by Acquisition Activity

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WE CAN HELP:

LPL’s Strategic Acquisitions team can help you accelerate the growth of your business by sourcing, constructing, and funding mergers and acquisitions. The team has decades of specialized and direct deal-making experience helping advisors navigate this complex environment, especially as it relates to the uniqueness of the financial advising industry. Whether the deal involves business transitioning within the internal LPL environment or coming from an external source, the team can help craft the right solution for you. Learn more at the Resource Center by searching for “Strategic Acquisitions.”

“ Helping clients is why we are in this business. By growing your firm you reach more clients. This can be one client at a time, or hundreds of clients at a time—the growth trajectory is entirely up to you!

Organic growth via centers of influence, workshops, and client referrals are still highly encouraged, but will never match the growth efficiency that practice acquisition provides. Practice acquisition will always be integral to the future success of our firm. We’ve found that business growth can be consistently harnessed and methodically attained—even with a higher client retention rate—through acquiring other practices.”

Aaron J. Clark, Monarch Wealth Strategies

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Growth Activity and Preferred Growth MethodsDon’t wait for growth to happen. Take action to make it happen.

Along with intended revenue benefits, it is important to note that growth is the single largest source of value creation. The survey demonstrates that the more time advisors spend on activities that will help grow their practices, the greater growth they are likely to experience in NNA and revenue.

According to the survey, the most effective way for advisors to grow their business is by acquiring other practices, thus increasing their NNA and revenue by up to 77%. That is followed by a multi-pronged approach that rolls in two other methods: adding new clients and increasing the wallet share of existing clients. Our survey found that adding clients and increasing wallet share of existing clients can boost NNA and revenue by more than two percentage points.


0 to 33% 33 to 67% 67 to 100% 0

20

40

60

80

100

120

Avg.

AUM

($ M

illio

ns)

0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0%

NNA

Grow

th

NNA Growth by Time Spenton Growth Activities


0

200

400

600

800

1000

Avg.

Pro

duct

ion

($ T

hous

ands

)

0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0%

Reve

nue

Grow

th

0 to 33% 33 to 67% 67 to 100%

Revenue Growth by Time Spenton Growth Activities

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However, the survey demonstrates that neglecting the active pursuit of growth actually leads to a decline in NNA and revenue.

Acquiring AdvisorPractices

All of the Above

Increasing WalletShare with

Existing Clients

Adding New Clientswithin ExistingSales Channels

I'm Not Looking to Grow

NNA Growth

-6.0% -4.0% -2.0% 0.0% 2.0% 4.0% 6.0% 8.0%

10.0% 12.0%

NNA Growth by Preferred Growth Method

Revenue Growth by Preferred Growth Method

All of the Above

Acquiring AdvisorPractices

Adding New Clients within ExistingSales Channels

Increasing WalletShare with

Existing Clients

I'm Not Looking to Grow

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

Revenue Growth

20


Growth Activity and Preferred Growth Methods: Time Spend.

On average, advisors spend more time during the day on office management and administrative tasks and less time on growing their business. That translates into greater opportunities to delegate those tasks to an administrative assistant or outside service provider to create more time to strengthen relationships with current clients and attract new clients.

� Surveyed advisors say managing current clients takes up more than half of their day.

� Nearly three-quarters of advisors say they spend 25% or less of their day on business development activities.

Respondent Average Time SpentDuring Typical Day

ManagingCurrentClients 56%

Growing YourBusiness 17%

Of�ce Managementand Administration Tasks

22%

Other 5%

Managing Current Clients Of�ce Mgmt. & Admin. TasksGrowing Your Business Other

0% 10% 20% 30% 40% 50% 60% 70% 80%

Respondent Time Allocation Distribution

0% Up to 25% 25–50% 50–75% 75–100%

21


Growth Activity and Preferred Growth Methods: Opportunities.

Where do advisors believe the greatest opportunity lies for the future growth of their business? Nearly half of them think the pursuit of greater wallet share from current clients is the best path to growth. Another popular opportunity is the pursuit of high-net-worth relationships.

While most of the advisors surveyed cast a wide net in looking for growth opportunities, the most popular method revolved around existing clients and sales channels. The survey revealed that acquiring existing practices can boost value and growth, but only 8% of advisors choose that route to grow their businesses.

All of the Above 44%

Adding New Clients within Existing Sales Channels 35%

Increasing Wallet Share with

Existing Clients10%

Acquiring Advisor Practices 8%

I’m Not Looking to Grow 3%

PreferredGrowth Method

Other14.9%

High-Net-Worth Client Service 17.4%

Hybrid RIAStrategy 13.0%

Supporting Quali�ed Retirement Plans 6.9%

ExistingClients 47.7%

Greatest Future Growth Opportunity

22


Growth Activity and Preferred Growth Methods: Obstacles.

The greatest obstacle to growth, according to advisors surveyed, is the time, cost, and complications associated with regulatory compliance. After compliance, responding advisors said the search for ways to run a lean practice and recruit new clients are the next biggest obstacles to growth.

Using LPL and/or partner services, including LPL’s advanced platform of risk and compliance management, investment management services (such as centrally managed advisory platforms and research), and technology, may help boost a practice’s efficiency and scalability by freeing time to focus on activities that grow NNA and revenue. Reducing the time needed to manage administrative and logistical tasks frees up time for advisors to pursue new clients and engage other growth strategies.

% Response

Need for Enhanced Training

& Education

0%

5%

10%

15%

20%

25%

30% Greatest Obstacle to Growth

Need for More Turnkey A

sset

Management Resources

Need for More

Marketing Resource

s Other

Human Capital Constraints

Time Constraints

Finding New Clients

Finding Ways to Become

More Ef�cient & Scalable

Regulatory Complexity

and

Related Costs & Time Spend

23


WE CAN HELP:

Visit the Resource Center for more information on growth opportunities—acquisitions, increasing wallet share, and adding new clients. Search for “Strategic Acquisitions” for guidance from LPL’s Strategic Acquisitions team. The Strategic Acquisitions team can help you accelerate the growth of your business by sourcing, constructing, and funding mergers and acquisitions. Visit Your Business | Advisor Support Services | Strategic Acquisitions. The Business Analysis team provides financial consulting support to help you determine the value of your business and identify opportunities to improve your profitability and efficiency. Our valuation services resources can help position you to maximize the value of your business. Visit Your Business | Advisor Support Services | Business Analysis or email [email protected] Our Private Client team offers knowledge and expertise to help you win and serve affluent and institutional clients. The team has dedicated experts specializing in the areas of comprehensive financial planning, tax-sensitive investing, foundation and endowment guidance, and other services important to those with more complex financial needs. Learn more by visiting Investment and Planning Solutions | Client Goal | LPL Private Client.

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Technology and Social MediaPlug in, log on, and watch your value grow.

Advisors who embrace technology (using tools such as wealth planning software, social media, client relationship management tools, or paperless processes) build more valuable businesses than their peers.

� Wealth planning software or financial planning services are likely to strengthen business value by helping uncover investable assets not currently held with the advisor as well as opening the door for multigenerational planning. They also broaden the spectrum of services offered and organize complicated financial scenarios. All of this is likely to increase client stickiness and attract clients who are deciding between advisors.

� Social media and client relationship management (CRM) software offer similar benefits.

� Paperless systems are less likely to benefit valuation directly, but may create efficiencies that free up time for business development.

With Without

Any Technology Usage 1.75

1.80

1.85

1.90

Valu

atio

n 1.95

2.00

2.05

Valuation by Technology Usage

NNA Growth

0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0%

0 to 2 3 to 4 More Than 4

NNA Growth byTechnology Usage

Wealth Planning Software

Social Media

CRM Paperless (eSignature, etc.)

With Without

1.65 1.70 1.75 1.80 1.85 1.90 1.95 2.00 2.05 2.10 2.15

Valu

atio

nValuation by

Technology Usage

25


The more sophisticated a firm’s use of technology, our survey shows, the greater revenue growth for the business.

� The survey indicates practices that don’t use social media have actually declined in growth.

� Practices that use more than two social media platforms demonstrate the most favorable growth of NNA and revenue.

Revenue Growth

0 to 2 3 to 4 More Than 4 -0.5% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5%

Revenue Growth byTechnology Usage

Revenue Growth

No Usage 1 Platform 2 Platforms More Than 2 Platforms

Revenue Growth bySocial Media Usage

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

NNA Growth

No Usage 1 Platform 2 Platforms More Than 2 Platforms

-3.0% -2.0% -1.0% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0%

NNA Growth bySocial Media Usage

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WE CAN HELP:

LPL offers a great many tools and platforms to help boost your technology and social media effectiveness. Visit the Resource Center | Marketing for information on:

� Marketing On Demand, which features Compliance-approved, customizable marketing materials for building brand awareness and effectively communicating with clients and prospects.

� The Automated Campaign Tool, a turnkey, automated marketing communication tool through Marketing On Demand that will enable you to scale your marketing efforts with consistent touch points.

� Resources to identify which digital and social media channels can benefit your practice and create a consistent strategy.

� Erado, a required subscription service that helps you maintain compliance in social media marketing.

The Marketing Solutions Center also offers one-on-one personalized marketing consultations on an appointment-only basis. Our knowledgeable team will examine your business and help you spot opportunities where marketing campaigns and social media outreach can make a positive impact. Contact the team at (800) 877-7210 x6700, option 1, or [email protected].

LPL is an industry leader in providing robust, intuitive technology solutions and tools to help you effectively manage and grow your business. Visit the Resource Center | Technology.

LPL also offers resources to assist you in the financial planning process within your practice. Click on Investment and Planning Solutions | Financial Planning.

27

Advisor CharacteristicsThe impact of age and education.

Specific characteristics of advisors can affect value in a variety of ways. For example, factors such as an advisor’s age and an advisor’s certifications can dramatically affect valuation of the practice.

� As an advisor grows older and their practice matures, growth rates of NNA and revenue decline. Eventually, AUM and revenue themselves may even drop. Along with decreasing assets under management and revenue over an advisor’s lifetime, return on assets also drops.

Average Revenue ($ Thousands) Return on Assets

Under 40 40 to 50 50 to 60 Over 60

Return on Assets by Advisor Age

0.80% 0.85% 0.90% 0.95% 1.00% 1.05% 1.10% 1.15%

ROA

0 100 200 300 400 500 600 700

Avg.

Rev

enue

($ T

hous

ands

)


Reve

nue

Grow

th

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

Under 40 40 to 50 50 to 60 Over 60 -400

-200

0

200

400

600

800

Avg.

Rev

enue

($ T

hous

ands

)

Revenue Growth by Advisor Age

-20

0

20

40

60

80

100 Av

g. A

UM ($

Mill

ions

)

Under 40 40 to 50 50 to 60 Over 60

AUM

Gro

wth

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%


NNA Growth by Advisor Age

28


� Certifications may be enticing to potential clients and help the advisor win more clients than uncredentialed advisors. Plus, advisors with certifications often have strong business acumen, which is crucial in creating a successful practice with strong equity value.

� The survey found that advisors with MBAs and Chartered Financial Consultant® (ChFC®) certifications lead the way in terms of business valuation, followed by Certified Financial Planners™ and CPAs.

Any Designations No Designations

Valuation

1.85

1.90

1.95

2.00

2.05

2.10

2.15

Valuation by Professional Designation

Valuation

CPA CFP ChFC MBA 1.70

1.80

1.90

2.00

2.10

2.20

2.30

Valuation by Professional Designation

29


WE CAN HELP:

There are many options available on the Resource Center to help you get the most out of your unique attributes and those of your clients. Click on Your Business | Tips & Best Practices for various practice management support resources. For help in communicating your value proposition, contact the Marketing Solutions Center for a one-on-one consultation. They can help you determine the best ways to showcase your offering to clients and prospects. Set up an appointment by calling (800) 877-7210 x6700, option 1, or emailing [email protected]. LPL’s Strategic Business Solutions teams can also address cyclical ROA declines by consulting on mergers/partnerships that can reinvigorate your practice, developing a succession plan for transition protection, and identifying opportunities for enhancement within your business or client mix. Search “Strategic Acquisitions” on the Resource Center. Click on Your Business | Advisor Support Services | Succession Planning. Click on Your Business | Advisor Support Services | Business Analysis. LPL’s Financial Planning group can help you organize the financial planning process within your practice. Click on Investment and Planning Solutions | Financial Planning.

“ I have hired people and they were not CFP®s, and once they get out of the CFP® course, their business doubles and triples. Investing today is a commodity, but the planning is what retains people and what makes these clients sticky. It’s all the other things you do that they cannot just go, ‘Google, give me the answer.’”

Laila Pence, Pence Wealth Management

30

Practice Characteristics The circle of life in a financial advisor’s business.

Some degree of change is destined to occur during the lifecycle of a practice. Generally, the more aspects of a business that remain intact or unchanged after a sale, the more valuable that practice will be.

� Retaining key employees is the best way to preserve value.

� Selling to an advisor within the same office reduces the risk of losing clients.

� Keeping the same name helps preserve brand recognition.

� Practices with scale see a valuation premium.

� Greater revenue per household translates to higher business value.

Yes No

1.60 1.65 1.70 1.75 1.80 1.85 1.90

Valu

atio

n

1.95 2.00 2.05 2.10

Key EmployeesStay Post-Sale

Selling withinOf�ce

Brand Name Stays the Same

Local PresenceMaintained

Main Of�ceRemains Open

Valuation by Post-Sale Characteristic

Valuation

Valuation by Practice AUM

Less Than $75M

$75M to $150M

$150M to $225M

$225M to $300M

Greater Than $300M

1.50

1.70

1.90

2.10

2.30

2.50

2.70

31


Bringing other advisors into the fold can be profitable. Our survey finds that advisors who recruit other advisors to their practice and run ensemble enterprises enjoy the benefits. Advisors can use a variety of avenues to seek and sign up fellow advisors: networking events, conferences, third-party recruiting firms, and LPL’s business development team.

With Without

Advisor Recruitment

Revenue Growth by Advisor Recruiting Practices

0.0%

1.0%

2.0%

Reve

nue

Grow

th 3.0%

4.0%

Valuation Multiple

Valuation byPractice Revenue

$1M or Less

$1M to $2M

$2M to $3M

$3M to $4M

$4M to $5M

1.50 1.60 1.70 1.80 1.90 2.00 2.10 2.20 2.30 2.40

Revenue Multiple Valuation

1.80 1.85 1.90 1.95 2.00 2.05 2.10 2.15 2.20 2.25

$3,500 or less

$3,500 to $7,000

$7,000 to $10,500

Greater Than $10,500

Valuation by Average Revenue per Household

32


WE CAN HELP:

LPL offers a blueprint for the recruiting process, including best practices, roles and responsibilities, and how we can support you. The HR Partners team provides hiring guides, sample interview questions and evaluation materials, and templated job descriptions that can help you source the right people for the position. Visit the Resource Center and search for “HR Partners” to learn more. When building out your team, it’s also important to think about the long-term future of your practice. LPL’s Succession Planning team is here to help you lay the groundwork toward successfully structuring a succession plan, which can positively affect the value of your practice. Click on Your Business | Advisor Support Services | Succession Planning. LPL can also help you accelerate the growth of your business by sourcing, constructing, and funding mergers and acquisitions. Click on Your Business | Advisor Support Services | Strategic Acquisitions.

“ If you want a lifestyle practice where you’re the center of everything, you can do that still, but it might be more of a challenge, and you’re going to be in a situation where the earnings opportunities may not be as great as they were in the past. We believe that the future looks like this: You’re either going to be big, affiliated with someone who’s big, or probably be a lot smaller or gone. One of the three.”

John Shrewsbury, GenWealth Financial Advisors

33

Business MixDrop advisory into your basket.

Advisory can be a win-win for you and your clients. The industry is already seeing a marked shift toward a fee-based model when appropriate for the client. Those clients can potentially benefit from an advisory relationship in several ways, as the relationship marries the clients’ best interest with your decisions. Some of the advantages include less conflict of interest, fee transparency, more holistic wealth management, a stronger relationship, ongoing investment management, and institutional access.

Bringing more advisory business into your practice’s mix can also yield a greater opportunity for higher value.

� Potential benefits of advisory that could lead to higher valuation include a steady revenue stream, scalability (which allows greater efficiency), and the mitigation of some of the risk that accompanies commissioned accounts.

� Our survey found that advisors who converted their brokerage business to advisory, when appropriate, realized greater revenue growth than those who did not.

Valuation

50% or Less Greater Than 50% 1.50 1.55 1.60 1.65 1.70 1.75 1.80 1.85 1.90 1.95 2.00

Valuation byRecurring Revenue

Revenue Growth

0% to 50% 50% to 100%

Revenue Growth by Shift to Advisory

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

Valuation

Valuation byAdvisory AUM

33% or Less 33% to 67% Greater Than 67% 1.60

1.70

1.80

1.90

2.00

2.10

2.20

34


WE CAN HELP:

Offering both brokerage and advisory business allows you and your clients to choose which model is best for them. Moving to a fee-based model will also require a change in how you manage your clients and investments. The LPL Advisory Consulting team is available to assist you, whether you’re relatively new to the advisory space or have been offering a fee-based model for years. They will help you discover what strategies can have the most impact on your clients and create strategies that can drive results. Learn more about the team by visiting the Resource Center and searching for “LPL Advisory Consulting.” To learn more about offering advisory as an option, visit the Resource Center at Investment and Planning Solutions | Advisory-at-a-Glance. Also, LPL’s Valuation Services Program can help you determine if advisory is an option that will help boost your ultimate value. Click on Your Business | Advisor Support Services | Business Analysis.

Advisors should recommend an advisory account only if it is suitable for the client. Advisory accounts may not be appropriate for every client. Examples of appropriate brokerage accounts include:

� If a client has a small portfolio and prefers to follow a buy-and-hold strategy for a long period of time without ongoing advice, a brokerage relationship may be more appropriate.

� If the client prefers to make the investment decisions and is looking for a financial advisor to only provide occasional recommendations and execute orders, a brokerage relationship may be more appropriate.

� Advisors need to understand that advisory relationships involve a higher standard of care than brokerage and typically require an ongoing duty to provide advice and monitoring.

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Documents

Forge Your Path Build Your Business Maximize Your Value · 2019. 10. 21. · Forge Your Path Build Your Business Maximize Your Value. Contents ... the expected sale price of your