A recent study by TD Ameritrade analyzed advisor profitability, and accordingly the firm picked out what it believes are among the top strategies for sustainable growth.

Revisiting pricing, finding more efficient ways to operate and delivering a superior client experience are among the main ingredients for strong, sustainable advisor growth, according to The FA Insight Study of Advisory Firms: Growth By Design.

The study of 325 RIAs shows that “lackluster markets did little to boost growth in 2015 and advisors generally expect more of the same this year,” TD Ameritrade said. 

Indeed, average pace of asset growth slowed by 56 per cent to 4.7 per cent, firm revenue growth slowed to half of its 2014 rate to 7.3 per cent, and client base growth rate also decreased from 7.1 per cent to 6 per cent between 2014 and 2015, the findings show.

“After 2014’s record profitability and explosive growth, advisors now must be more disciplined - and that's not a bad thing,” said Vanessa Oligino, director of business performance solutions at TD Ameritrade Institutional. “Firms need growth plans that go deeper than just riding the rising market tide if they expect their success to carry through different cycles.”

The study reinforces that RIAs with solid growth plans and strong execution tend to fare better than their peers on a number of fronts. Among “standout” firms - defined by FA Insight as those in the top quartile as measured by revenue growth and income generation - annual revenue grew by around two to three times faster compared to their peers in 2015.  

“Operational efficiency may be the single most important factor in determining a firm's growth and profitability, particularly in challenging markets,” TD Ameritrade said. Over two-thirds of those polled are, in fact, concentrating on operational efficiency to spur growth, with a focus on improving consistency and boosting productivity. 

On the topic of automation, the extent to which firms are willing to automate varies depending on the task. Portfolio management, for example, emerged as the area where firms have the greatest tendency to automate, while technology integration (allowing users to access data from a single sign on and work seamlessly across applications) remains a challenge, with only 3 per cent of firms claiming to be fully integrated.

Overall, client experience was flagged in the study as a key driver of growth. While delivering a consistent, high-quality client experience remains a challenge across the industry, 56 per cent of “standout” firms said this is their biggest driver of growth, compared to only 41 per cent of their peers. Standout firms “keep it simple and master a more limited service offering,” TD Ameritrade said. 

Meanwhile, in the face of rising costs and slower growth, advisors have been reluctant to increase or diversify their pricing, according to the study. Only 34 per cent of firms have increased their pricing in the past two years, compared with 42 per cent in 2014. However, TD Ameritrade believes this reticence may be misguided, saying: “Firms that clearly articulate and demonstrate the value they deliver to clients should revisit their pricing to help ensure each client relationship is profitable for the firm.”

Pursuing a merger or acquisition was one of the more aggressive growth strategies explored in the study. One in five firms cited deal-making as a key driver of their recent growth, with the most common transaction being the acquisition of a solo practitioner.

“Advisors today have many possible paths to growth. That's exciting, but it’s also potentially distracting for firms without a well-designed plan,” said Oligino. “For growth to be systematic and sustainable, advisors need to focus on delivering a trademark client experience and then have confidence to price that service accordingly.”