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Top challenges for financial advisory firms in 2023

January 19, 2023
clock 4 MIN READ
Shauna Mace, CHPC

Head of Practice Management

In the last Ideas from the Lab blog, "Opportunities for advisory firms in 2023," we shared our predictions for the three greatest opportunities for advisors in 2023. What about the greatest challenges?

We expect financial advisors to face these challenges in 2023:

  1. Capacity
  2. Mismatched expectations
  3. The pressure to do more

Capacity

Firms aren't reinvesting. They’re hiring much needed talent instead, according to the "2022 InvestmentNews Advisor Benchmark Study"1 sponsored by SEI. This shines through in historically high profitability data.

At the end of 2021, revenue was up and expenses were flat, which produced an almost 30% average gross profit margin for participating firms. The more profitability, the lower your capacity.

Beyond the research, we hear this struggle over and over in consulting and coaching conversations we have with SEI advisors.

How are you going to deal with your capacity issue?

Take action:

How can you gain capacity?

  • Hire necessary staff
  • Reduce the number of clients you serve
  • Focus in on a specific group of clients (specialization)
  • Focus on a specific technical specialization
  • Leverage partnerships to outsource aspects of your business. SEI supports RIAs, BD advisors, and more as a custodian, technology provider, and outsourced investment manager.
  • Build or improve your internal infrastructure through the use of technology, processes, workflows, integration, etc.

Mismatched expectations

Unclear expectations occur often between investors and their advisors. The reality is that investors’ expectations are dynamic. They are always changing, just like their situation and the world around us.

What do your clients expect when it comes to investment performance, planning issues, or their experience with your firm? Where can you reset their expectations this year, especially around investment performance?

While you can’t control what your clients are thinking, you can set clear expectations when it comes to investment returns, what services you provide, how you provide them, and the clients’ own responsibility in the process. Every communication and interaction is an opportunity to set and reset expectations, and gather feedback from your clients.

Take action:

The best clients are those that are engaged, not merely satisfied. They refer you to others, are confident in their situation, and value your advice. Drive engagement by seeking to have deeper conversations beyond finances.

Client review meetings, ad-hoc check-in calls, incoming client calls, and email or newsletter communications are all opportunities to check in and set (or reset) expectations. Use open-ended questions such as, “How are you doing?” “What’s changed?” or “How do you feel about…” to open up a deeper conversation. Ask follow-up or clarifying questions to dig deeper. When investment markets are volatile, inflation is high, and there’s a lot of uncertainty, check in specifically on how they are feeling about it. Your clients may need education, perspective, or additional support as they navigate these challenging times.

Always do what you say you’re going to do in order to build trust and satisfaction, which lead to engagement.

The pressure to do more

We hosted a practice management webinar in December, and asked more than 150 participants what changes they were planning to make to their service model in 2023. The number one change they reported was adding a new service to their offering. If you recall, capacity was the first challenge we outlined. While fee compression may not be happening, advisors doing more for the same fee is an ongoing and growing problem.

Take action:

Before you add additional services, consider these questions:

  • Are you getting credit for what you’re already doing?
  • What is the greatest value you deliver your clients? Is adding this service in support of that value?
  • Consider your ideal clients—the ones you want to grow with. Will it help them?
  • Is there a way to add relevant services without drawing on your capacity?

In a previous Ideas from the Lab post we shared a framework to help you answer the question, “Should we do this?"

Try using a visual representation of your services to communicate everything you currently do. Systematically keep track of all your services, and communicate them in order to ensure you get credit. This will also help you truly understand everything that has been done over the year.

Key takeaways:

Be aware of the opportunities and challenges you may face, but most importantly, remain clear about what success means to you. Tailor your plans to achieve your vision of success. If you don’t have a plan for 2023, this one-page business plan template can help you get started.

Cheers to a successful 2023!

Sources:

1. "2022 InvestmentNews Adviser Benchmarking Study" (fee required to view report), InvestmentNews, investmentnews.com.

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