What a slew of recent RIA surveys say about the firms' hunger for growth

Brooke’s Note: On a consistent basis, we get sent surveys from big industry players that have polled advisors. The surveys often do not merit articles unto themselves in our opinion. But in this article we bring together some of the more interesting findings from the past month and chat with advisors about whether they seem to ring true.

After slowly chugging past the recession, RIAs and their growth plans are now rapidly gaining steam, according to recently released industry reports.

“Two years ago, advisors were all about calming clients down,” says Scott W. Dell’Orfano, executive vice president of sales for Fidelity Institutional Wealth Services. “Now, they’re positioning their firms for growth.”

The premise these reports share is that even though industry leaders feel RIAs have a green signal for growth, they must be careful to avoid perennial pitfalls that could derail their progress.

In recent weeks, TD Ameritrade, Fidelity Investments, Quantuvis Consulting, technology firm ByAllAccounts, and Rivermark Research have released analyses detailing specific ways in which advisors are approaching growth and potential pitfalls they may face. Here are some of the key takeaways.

Hiring frenzy

Fully 75% of 300 Fidelity Investments advisors polled at its 2011 Executive Forum in May are planning to hire up to 30% more employees over the next 12 months, according to Fidelity’s study.

Of those, 43% said their top staffing priority in 2011 is new advisors/brokers that have existing books of business, followed by 19% who plan to mentor and help existing staff transition to an advisor role.

Nearly one-third of advisors (32%) say that ongoing industry consolidation has made it easier to recruit, while 62% say it has had no impact on their efforts. See: 9 things worth knowing from Schwab’s newest advisor study

Money in motion

RIA firms say adding new clients will be their No. 1 driver of profitability this year, a 17 percentage point increase over 2010. Firms expect adding new brokers and advisors will be their second biggest driver of profitability at 21%, up from 14% in 2010.

“There is no doubt money is in motion, whether from investors moving firm relationships or brokers and advisors going independent and bringing client assets with them,” said Bobbi Masiello, executive vice president of Relationship Management of National Financial in a statement.

Bad hiring habits

RIAs struggle to hire the right staffers, says Natalie Doss, a research manager with Quantuvis Consulting in Redlands, Calif. Just 17% of advisory firms surveyed consistently implement a formalized hiring process. Lacking such a system, RIAs make hiring decisions based on gut instinct and the likability of a candidate, which, she says, is a recipe for disaster.

Too often, smaller firms become so strapped for manpower that they make hasty hiring decisions to fill a hole and bring someone in without proper screening.

Learning from mistakes

Hiring is not easy, agrees advisor Lee Munson, an advisor with Portfolio LLC in Albuquerque, N.M. He just hired two advisors in the past three months and his firm has grown from $50 million in 2009 to about $150 million now.

Munson spends a solid six months interviewing and meeting with candidates before he hires them.

“You want to make sure your values and culture are the same,” he says. “You’ll make hiring mistakes. You need to learn from them and just don’t repeat them the next time.”

Bringing on new clients

Many advisors who may not be hiring new employees are growing their practices by luring new clients, according to data from TD Ameritrade. The company surveyed 501 RIAs in a telephone survey form March 21 to April 1, including RIAs who custody assets with TD and other independent advisors.

The study showed 73% of RIAs have seen an increase in the number of clients over the last six months, up 7% over the same period last year. Fewer RIAs are reporting a loss in the number of clients: 5% compared to 8% last year.

Preston Byers, president of ClearBridge Wealth Management in Atlanta, Ga., says he’s been steadily bringing in new clients all year.

Right now, the firm has nearly 100 clients and he’d like to gain about 10 new clients each year. His firm is right on that pace. The key is to grow at a reasonable pace and not be too aggressive.

“At the end of the day, if all you are is a manager of salespeople, I’d be miserable,” Byers says. “Bigger is not actually better. Some of the practices bigger than mine are working more hours, they’re stressed out and having employee nightmares.”

Spend to grow

Another key to advisors’ growth is a willingness to invest in business development. Munson says his firm wouldn’t have grown if he had been afraid to invest in the business even though allows that some of the money has gone down the drain.

Advisors are starting to spend more money on technology. ByAllAccounts, a Boston-based technology firm, surveyed more than 250 advisors last spring and found that advisors are increasingly using technology to grow their business. The analysis found that more than 40% of advisors have a tablet computer and the majority bought it within the past three months.These devices are helping advisors stay connected while out of the office and making the move to a paperless office easier, says, Cynthia Stephens, vice president of marketing.

Investment strategies

The TD study showed RIAs remain steadily bullish in their long-term approach to investment management with a 48% allocation to equities, up 5 percentage points from the previous quarter.

However, RIAs are critical about commodity ETFs, according to analysis by Rivermark Research, a privately held research and consulting firm. The study found 80.6% of 500 RIAs surveyed will not recommend new commodity ETFs to clients because of the products’ over-saturation in the marketplace.

“An overwhelming percentage of advisors do not believe that new commodity ETF and ETN products such as gold, oil and other energy and precious metal ETFs will fill any portfolio holes that are not already available in current products,” says Robert Crain, vice president of Analytics and Research for Rivermark, in a statement.