Wouldn’t you like to know what your advisor really considers important? The Capital Group (American Funds) anonymously surveyed 1,508 advisors in all types of firms and tried to determine the answer to this question. I doubt it will be what you think. I am pretty sure that Adams Financial Concepts was part of the survey. Our focus and passion of creating and maintaining wealth did not make into the big three conclusions drawn from the survey.
The survey participants ranged from long time experienced advisors to those just beginning. widely. They ranged from the RIAs to the big brokerages and corner office teams to the small single person firms. While some had modest practices, others managed billions of dollars. The participants averaged a 14% growth in their revenues during the surveyed period, 2019. The highest growth advisors were up 23%.1 (Compare that to the S&P 500 TR which was up 31.9%. AFC client composite was up 40.3%.)
What Capital Group found was a focus on growth. “[They] analyzed results based on dozens of factors, including things like model portfolio usage, assets under management, retirement plan assets, technology adoption, and practice management behaviors. The resulting framework places practices in one of six segments, from low to high growth, and identifies behaviors and skills associated with each. Focusing on the results of the highest growth segments can help advisors chart their own pathways to growth.”2
The study showed three factors that led to the highest-growth practices:
- Always-on acquisitions
- Relationship alpha
- Strategic scale.
The highest growth firms saw revenue increases coming from acquisition of new clients. AFC’s primary focus is on growing client assets. Of course we seek new clients, but our primary concern is serving the clientele already in our care.
Consider this case study. We had a client who opened an account in August 2000. At 53 years old, she had fibromyalgia and Lyme’s disease, among other health concerns, and had just gone through a divorce. She had $911,000 and needed an income of $5,000 a month to meet expenses, including her house payments. She had met with several financial advisors who all told her that she needed to either cut back on medications or sell her house and move into a small apartment. Based on the client’s assets and monthly cash needs, the financial planning software could not find a way to maintain her quality of life without a constant drain of principal. They predicted she would run out of money by the time she was 72.
She came to me just as the stock market was plunging from the Dotcom bust. With just $911,000 and in need of $60,000 per year (6.5%), I felt we could achieve her goals of a moderate account and keep her from running out of money. I explained the value proposition of AFC was to grow client account values. Even our contract with clients says our goal is to outperform the S&P 500 TR over the longer-term (5 to 10 years). The AFC approach is to be invested all the time, so we do not miss the best days. That also means there will be times when the account is down, and some years when the account will perform worse than the S&P 500. But in the longer-term our goal is to see the account grow and furnish the income as long as she would live.
Sadly, the client died in August 2017. From August 2000 until August 2017, she withdrew over $1,500,000 in income, closer to $90,000 per year instead of the projected $60,000. She had over $740,000 left in her account at the time of death, and, had she been alive today, she might have taken $2,300,000 from the account and had an account value in excess of $1 million, more than she had had when she opened the account in 2000.
1. Capital Group. “Pathways to Growth: Capital Group’s 2021 Advisor Benchmark Study.” Fidelity. Fidelity Clearing & Custody Solutions®, June 17, 2021. https://clearingcustody.fidelity.com/app/literature/item/9903857.html.
2. Capital Group, 1.
