PULSE OF THE INDUSTRY2 0 2 0 M I D Y E A R S U R V E Y

• The advisory industry has suffered surprisingly little damage from the COVID-19 crisis and continues to invest in client services and adapt to the new way of working.

• The average change in assets under management (AUM) is minimal at -1.2%, and very few firms are either suffering significant declines (low quartile is -3.2%) or gaining ground (high quartile is 1.2%).

• Advisory firms are also continuing to hire, with 53% of firms ending the first two quarters of 2020 with more employees than they started with. Layoffs are essentially non-existent in the industry.

• Client activity is significantly diminished, with net activity as low as one-third of 2019 levels, though firms are adding twice as many clients as they are losing. The typical firm had 675 clients, added an average of 24 clients and lost 10.

• While industry spending is changing, not dramatically so. Firms are reducing incentive compensation budgets and purchasing more technology to work remotely. Some firms are curtailing marketing spending while others are willing to be contrarians, spending more on growth by increasing marketing budgets.

• The size of the firm made little difference on outcomes: firms large and small faced similar dynamics. Still, the largest firms have been more likely to make budget changes, either decreasing or increasing them.

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Executive Summary

• The Ensemble Practice invited participants and alumni of the G2 Leadership Institute to complete the Pulse of the Industry survey.

• Seventy-two firms responded to the survey.

• The average participating firm has $1.746 billion in assets under management.

• Due to the nature of the invitation, data may not be representative of the entire industry.

– Sixty percent of firms surveyed have AUM over $1.0 billion, which is significantly above industry statistics.

– Twenty-six percent of firms have AUM under $500 million.

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The Survey

• Participating firms saw little change in assets under management (AUM) in the first six months of 2020.

• The typical firm ended the first two quarters with almost the same AUM it started the year with (median change of -0.8%).

• There are almost no firms “in trouble,” i.e., no firm reported a decline in AUM over 10%.

• There are also no firms “swimming against the current,” with the third quartile of growth equal to 1.2%.

Changes in AUM

4

-3.4%

-0.8%

1.2%

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

First Quartile Median Third Quartile

Percentage Change in AUM in First Six Months of 2020

• Retaining assets meant retaining employees: almost no firms went through a staff reduction.

• Even if slowly, firms continue to hire: 58% of firms have hired for a new position during the crisis so far.

• Forty-two percent of firms ended the first six months with more employees than they started with.

Changes in Staffing

5

4%

33%

33%

42%

42%

58%

Had layoffs

Let staff go for performance reasons

Hired staff to replace departures

Had resignations

Increased headcount

Hired for new positions

Percentage of Firms with Changes in Staffing in First Six Months of 2020

Starting Clients: January 1, 2020 675

Less: Clients Who Left -10 1.4%

Plus: Clients Added 24 3.6%

Ending Clients: June 30, 2020 689

• Advisory firms faced very few client departures and continued to add clients.

• The typical firm lost 10 clients or 1.4% of its client count, which is actually lower than normal.

• On average, firms added twice as many clients as they lost (24 clients, or 3.6% of the client count).

• Overall, client activity is low. For comparison, in 2019 firms increased their net client count by 8.2% (11.9% growth and 3.8% departures).

Changes in Client Relationships

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• The crisis has brought about many changes in the business.

• More than half of firms redefined their processes.

• Forty-six percent of firms rolled out new marketing initiatives.

• Thirty-three percent of firms changed their software systems in response to the new environment of working remotely.

Key Changes in the Business

7

4%

5%

11%

12%

14%

21%

21%

25%

33%

46%

56%

Changed a strategic relationship(e.g., custodian or broker-dealer)

Changed pricing schedule (for atleast some clients)

Added new executive throughexternal hire or internal promotion

Undertook other strategic initiative notmentioned

Changed major portion of portfolios oroverall investment strategy

Changed a compensation process

Added a new client service or addedelement to an existing one

Created new training program orenrolled employees in existing one

Changed a significant softwaresystem

Created a new marketing initiative

Redefined an internal process

Changes in Key Aspects of the Businessin First Six Months of 2020

Redefined an internal process

Created a new marketing initiative

Changed a significant software system

Created new training program or enrolled employees in existing one

Changed a compensation process

Added a new client service or added element to an existing one

Changed major portion of portfolios or overall investment strategy

Undertook other strategic initiative not mentioned

Added new executive throughexternal hire or internal promotion

Changed pricing schedule (for at least some clients)

Changed a strategic relationship (e.g., custodian or broker-dealer)

• The crisis delayed very few initiatives.

• Compensation, systems, marketing and executive hires were among the few projects that were deferred.

Delays in Strategic Changes

8

0%

0%

0%

2%

2%

4%

4%

7%

7%

7%

7%

Changing major portion of portfolios oroverall investment strategy

Redefining an internal process

Adding a new client service or addingelement to an existing one

Changing pricing schedule (for at leastsome clients)

Creating new training program or enrollingemployees in existing one

Changing a st rategic relationship (e.g.,custodian or broker-dealer)

Adding new execut ive through externalhire or internal promotion

Changing a compensation process

Changing a significant software system

Creating a new marketing init iat ive

Undertaking other strategic initiative notmentioned

Initiatives Delayed Due to COVID-19

…changing a compensation process

…changing a significant software system

…creating a new marketing initiative

…undertaking other strategic initiative not mentioned

…changing a strategic relationship (e.g., custodian or broker-dealer)

…adding new executive through external hire or internal promotion

…changing pricing schedule (for at least some clients)

…creating new training program or enrolling employees in existing one

…changing major portion of portfolios or overall investment strategy

…redefining an internal process

…adding a new client service or adding element to an existing one

Delayed…

• Despite the crisis, 34% of firms in the survey added a partner in 2020.

• Thirty-two percent of firms also executed transactions between existing partners.

• Six percent of firms added an external investor.

• The cases of delayed equity transactions were very isolated.

Equity Changes

9

2%

2%

2%

4%

6%

32%

34%

Delayed internal equity transactions

Delayed M&A transactions

Delayed a deal with an external investor

Bought a book of business or equity inanother business

Sold equity to an external investor (i.e.,non-employee)

There was an equity transact ion betweenexist ing partners/owners

Added a new internal owner/partner (i.e.,employee)

Equity Changes from January to June 2020

Added a new internal owner/partner (i.e., employee)

There was an equity transaction between existing partners/owners

Sold equity to an external investor (i.e., non-employee)

Bought a book of business or equity in another business

Delayed internal equity transactions

Delayed M&A transactions

Delayed a deal with an external investor

• The budgets most affected by the pandemic included incentive compensation (27% of firms lowered their budget), marketing (22%) and consulting services (18%).

• Yet, many firms were willing to be contrarians and increase their budgets, with 33% of firms spending more on technology and 20% allocating more money to marketing.

Budget Changes

10

22%4% 12%

27%16% 10% 4% 2% 10% 18%

57% 94% 73%61%

67%57%

82% 88%88% 67%

20%2%

14% 12% 16%33%

14% 10% 2%14%

0%

20%

40%

60%

80%

100%

Market in

g

Acquis

itions

Staffin

g and Compensa

tion

Incentiv

e Com

pensatio

n

Training

Techn

ology

Operatio

ns

Investm

ent and Re

searc

h

Administrativ

e

Consulta

tive S

ervice

s

Budget Changes

Lower Unchanged Higher

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