COVER STORY

By Evan Simonoff

RGANIC GROWTH IS THE ADVISORY industry’ s Achilles’ heel, and continues to be a prickly challenge for an otherwise flourishing, young, labor-intensive profession. And while individual advisors continue to thrive, anemic growth remains a concern for many of their firms, as well as those whose business depends on advisors for their own revenue growth— like custodians, fintech software and platform developers and asset managers.

Established advisors are, in many ways, victims of their own success— the partners at these firms may be earning high six-figure incomes, but the demand for their services is starting to outstrip supply, as many firms operate at near full capacity.

Everyone should have such problems. In other professions, it’ s not uncommon for accomplished dentists, cardiologists and others to close their practices to new clients. Some very successful advisors might be asking themselves if they ought to do the same. They’ re likely questioning whether they can do justice to their existing clients if they keep adding new ones.( They also likely feel they have earned the right to more personal time.)

A recent report by Philip Palaveev’ s Ensemble Practice highlights the problem and describes this“ prosperous stagnation.”

After two years of strong market returns, the consultancy says the average asset and revenue growth at advisory firms has reached 15.3 %. Business owners in many industries would be envious. And there’ s an even more remarkable metric: Advisors are holding on to 95 % or more of their clients. That retention number more than anything is what’ s luring private equity firms to invest in advisories at eye-popping multiples

Yet few other businesses have revenue models as dependent on stock market returns as investment advisors, and those returns cover up the more problematic number: The Ensemble Practice found that advisory firms’ actual organic growth— the favorite metric of management experts, private equity investors and Wall Street investors— came in at 3.1 %, less than half the“ average firm’ s growth target of 10 %.”

There’ s a reason why Wall Street investors in the retail industry are laser-focused on same-store sales. If a company’ s individual business units are struggling to grow organically on their own, its decline is likely to be more severe after an economic downturn or an industry disruption.

What makes this predicament stranger is that survey after survey reveals that the American public is hungry for financial advice. If you take out market performance, you find firms enjoyed 4.1 % in net growth, the same exact number as their gains in new assets, according to the Ensemble Practice( that includes the 3.1 % the firm assigns to actual organic growth and another percentage point for mergers and acquisitions).

All the news isn’ t bad. Profitability and productivity, seen as vulnerabilities for the industry only 15 years ago, now stand at record levels. Between 2023 and 2024, the average advisory firm profit margin climbed from 36.4 % to 39.2 %. In a business where people represent about 75 % of all expenses, team productivity is also strong.

During their formative years, most advisory firms depend on the magnetic personalities and rainmaking skills of their founders— the people who generated new business through their charisma, connections and referrals.

IMAGERY VIA GETTY IMAGES SEPTEMBER 2025 | FINANCIAL ADVISOR MAGAZINE | 39