Weekend Reading For Financial Planners (August 9–10)

Advisory Firm Profit Margins Strong In 2024, Though Organic Growth Trails Targets: Ensemble Practice Study

(Karen DeMasters | Financial Advisor)

Financial advisory firm leaders have many possible key performance indicators to track that can indicate the health of their firm, from the current bottom line (e.g., profit margin) to the potential to grow into the future (e.g., net new client assets). By looking across a range of metrics, firms can identify areas of strength and potential room for improvement.

According to the 2025 Growth and Profitability Report from research and consulting firm The Ensemble Practice (based on data submitted by 230 financial advisory firms), the average advisory firm saw a record operating profit margin of 39.2% in 2024, up from a previous record of 36.4% set in 2023. Other positive news included record-high average revenue per client of $11,942, average revenue per advisor of $1.3 million (a record high) and average revenue per staff member of $459,655 (which was up from 2023). The study noted that the high productivity and profitability metrics were seen amongst firms across the size spectrum.

On the other hand, firms participating in the study only saw organic growth (net of market performance) of 3.1%, below the average firm's growth target of 10.0% (with two-thirds of firms seeing less than 3% growth in new assets from clients). The study attributed this challenge in part to the strong market environment seen in 2024, which might have encouraged some potential clients to continue managing investments on their own (also, it highlighted that the fastest-growing firms tended to be the least profitable [perhaps due to hard-dollar investments being made in marketing and staffing], while the most profitable firms saw less growth, signaling a possible tradeoff [at least in the short run] between rapid growth and profitability). In terms of potential ways to drive growth in the future, the study cites the importance of client referrals (which contributed to 52% of new clients among firms in the study) as well as investment in marketing (with fast-growth firms tending to allocate larger shares of their budgets to marketing).

Ultimately, the key point is that while financial advisory firms on the whole appear to be demonstrating strong profitability and productivity, challenges remain for some firms in attracting new client assets (though, perhaps some firms will find that the market turbulence experienced in early 2025 could spark interest from prospective clients in pursuing an advice relationship?).

AI, AML, Cybersecurity Top RIA Compliance Concerns: Survey

(Leo Almazora | InvestmentNews)

For many financial advisory firms, maintaining a strong compliance program is a work-intensive endeavor, not only because of the breadth of regulations and compliance requirements that RIAs are subject to, but also because of the ever-changing landscape of rulemaking and potential threats firms face.

According to the 2025 Investment Management Compliance Testing Survey released by the Investment Adviser Association, ACA Group, and Yuter Compliance Consulting (which surveyed 577 compliance officers and professionals across a range of firm sizes), Artificial Intelligence (AI) and predictive analytics were identified as the "hottest" topics by 57% of respondents, followed by Anti-Money Laundering (AML) at 41% and cybersecurity at 38%. The survey found that, at the moment, firms are primarily looking to AI for internal functions, with 40% of respondents doing so, compared to 5% that are using AI to support client interactions. Further, only 15% of firms surveyed have established policies and procedures to govern employee use of AI and just 4% have set up dedicated AI governance groups, suggesting some firms are still adjusting their compliance programs to the rapid developments in the world of AI.

Anti-money laundering saw a jump this year as well, with 41% of participants citing it as a concern, up from just 6% in 2024. This could be due in part to an anticipated new AML-related rules from the Treasury Department (though Treasury announced last month that it will review the content of the rule and delay its effective date from January 1, 2026 to January 1, 2028). Other areas of focus include off-channel communications (though this dropped from its top spot last year) and compliance with the SEC marketing rule (in the wake of FAQs released by the SEC in March).

Altogether, compliance officers at RIAs face an evolving landscape of implementation challenges (e.g., ensuring AI is used by staff in a compliant way) and threats ranging from potential compromise of client data to attempts by criminals to use their platforms for money laundering. Which suggests that a combination of both 'offensive' (e.g., conducting due diligence on new clients to ensure they are legitimate) and 'defensive' (e.g., establishing a robust cybersecurity program) tactics could help keep firms on the right side of regulatory requirements and protect their clients in the process.

Executive Order Aims To Ease Path For Private Assets, Cryptocurrencies In 401(k)s

(Jennifer Dlouhy and Allison McNeely | Bloomberg)

Workplace retirement plans (e.g., 401(k)s) typically offer employees a limited slate of investments from which to choose, typically including a variety of stock and bond funds (in part due to reluctance by plan administrators to offer more complex products that are harder for investors to assess and could lead to unexpected losses that threaten workers' retirement savings [as well as lawsuits]).

This could be changing, though, as President Trump on Thursday signed an Executive Order that intends to ease access to private equity, real estate, cryptocurrencies, and other alternative assets in retirement plans subject to the Employee Retirement Income Security Act (ERISA). The order directs the Labor Department to clarify the government's position on the fiduciary responsibilities associated with offering asset allocation funds that include alternative holdings (guidance which will be particularly notable for financial advisors who offer business-owner clients retirement plan fiduciary services). The order also directs the Secretary of Labor to coordinate with the Treasury Department, the Securities and Exchange Commission (SEC), and other Federal regulators to determine whether rule changes are necessary to assist the effort (the SEC is also asked to facilitate access to alternative assets for participant-directed retirement plans).

Proponents of easing access to alternative investments in workplace retirement plans suggest that such a move would allow a broader range of investors to access investments that have largely been used by wealthier and institutional investors and potentially provide greater diversification for retirement savings by giving investors access to private companies. Skeptics of this shift argue that many investors will not understand the full scope of risks associated with different alternative investments (potentially threatening their retirement savings) and that this is a push largely promoted by those offering alternative investment products to reach retail investors (and the fees they'll pay) after largely tapping out their traditional investor base.

In the end, while the process of adding alternative investments to 401(k) plan offerings will play out over the coming months, this latest order suggests that the momentum towards expanding the reach of these investments for retail investors continues. Which could lead to increased questions from prospective and current clients as to whether they might be a good fit for their portfolios and a choice for advisors who might decide to stick with more traditional investments for their client portfolios or conduct the due diligence necessary to offer sound advice on these often-complex instruments.

The Value Of Incorporating Income Risk Into Financial Planning

(Sebastian Gomez-Cardona | Morningstar)

When it comes to risks that could impact the success of a client's financial plan, the first challenges that come to mind for an advisor might be sequence of return risk (where poor market performance in the years leading up to and immediately after retirement can impair the portfolio's sustainability throughout the client's retirement) or perhaps sequence of inflation risk (where high inflation early in the distribution period of a retirement portfolio can deplete assets more quickly than if the higher inflation occurred later in retirement). For working-age clients, though, income risk can also present a challenge to meeting their short- and long-term goals.

Gomez-Cardona identifies three types of income risk: transitory income risk (i.e., short-term events that positively [e.g., a bonus] or negatively [e.g., brief period of unemployment]) that doesn't alter the client's long-term income trajectory, permanent income risk (i.e., events that have lasting effects on a client's earning potential [e.g., a promotion, extended period of unemployment, or structural changes that reduces demand for the client's skills] and can create significant divergences in long-term career and income paths), and correlation with equity returns (i.e., whether the performance of a client's industry is tied closely to equity market performance [e.g., careers in financial services would be more correlated to market performance than those in health services]).

Given these risks (and using data from the Panel Study of Income Dynamics), Gomez-Cardona analyzes potential ways advisors might adjust clients' portfolio allocations based on key factors. To start, income risk presents particular challenges to early-career clients (who might not have sufficient savings to cover a period of extended unemployment) as well as those nearing retirement (as their assets might not be able to support an additional few years of [unexpected] retirement), potentially calling for reduced equity allocations in these circumstances (while those in middle age might increase their equity allocation to build up greater wealth to protect against income risk when they eventually near retirement). Clients working in industries whose performance is highly correlated with equity market performance could potentially mitigate this risk from a lower equity allocation as well (in addition, those with significant income risk exposure could also consider increasing their savings rate to improve their risk capacity).

Ultimately, the key point is that because a working-age client's future earning power is often their most valuable asset, advisors can add value for these clients by identifying their risk exposure and discussing ways to mitigate it (including the previously discussed equity allocation adjustments, or possibly increased savings rates as well as obtaining appropriate disability insurance coverage) to increase the chances they'll be able to meet their financial goals both during their working years and in retirement.

4 Ways To Beat Sequence Of Return Risk

(Jennifer Lea Reed | Financial Advisor)

Sequence of return risk, the concept that even if short-term volatility averages out into favorable long-term returns, a retiree could still be in significant trouble if the sequence of those returns is unfavorable, is one of the primary threats to an client's lifestyle in retirement (though, notably, a positive series of returns early in retirement can create significant upside potential for the client's retirement income as well).

Amidst this backdrop, retirement researcher Wade Pfau during a recent webinar identified several ways financial advisors could help their clients mitigate sequence risk. One strategy is to have the client delay claiming Social Security benefits until age 70 (when they will receive a larger, inflation-adjusted monthly benefit for the rest of their lifetime) and create an income 'bridge' during the years between leaving work and age 70 using relatively low-risk assets (e.g., a 'ladder' made up of Treasury Inflation-Protected Securities [TIPS]), which can both extend the expected longevity of their portfolio and allow for greater income (through the larger Social Security benefit) even if it is eventually exhausted. A second option is to use a flexible withdrawal rate strategy (e.g., retirement income 'guardrails'), where a client's spending is adjusted upward or downward based on market performance (which can allow for a higher initial withdrawal rate, at the expense of potential future years with reduced spending).

Next, an advisor could consider implementing a "rising equity glide path", where a client starts with a lower stock allocation early in retirement and then increases it over time (to protect against a negative market environment early in retirement and, if one does happen, have greater participation in an eventual recovery by having a larger equity allocation). Finally, a client could hold a "buffer asset" outside of the portfolio to cover income needs during a market downturn, which can allow them to avoid selling equities after they have declined in value. Pfau suggests that such buffer assets could include cash, a variable rate reverse mortgage, or the cash value of a life insurance policy or the amount borrowed against it (and while these buffer assets can come with costs [e.g., interest owed], he suggests this can often outweigh the risk that comes from a potentially poor sequence of returns).

In sum, while sequence of return risk is a challenge for advisors and their clients navigating the early years of retirement, several strategies are available to help mitigate it. And by considering more than one option, advisors can find the best 'fit' for a given client's preferences and circumstances!

Should Equity Exposure Decrease In Retirement, Or Is A Rising Equity Glidepath Actually Better?

(Nerd's Eye View)

Thanks to the growing research on safe withdrawal rates and the adoption of Monte Carlo analysis, there has been an increasing awareness of the importance and impact that market volatility can have on a retiree's portfolio. Often dubbed the phenomenon of "sequence of return risk", retirees are cautioned that they must either spend conservatively, buy guarantees, or otherwise manage their investments to help mitigate the danger of a sharp downturn in the early years.

One popular way to manage the concern of sequence risk is through so-called "bucket strategies" that break parts of the portfolio into pools of money to handle specific goals or time horizons. For instance, a pool of cash might cover spending for the next 3 years, an account full of bonds could handle the next 5-7 years, and equities would only be needed for spending more than a decade away, "ensuring" that no withdrawals will need to occur from the portfolio if there is an early market decline.

Yet the reality is that strict implementation of a bucket strategy is more than just an exercise in mental accounting; it can actually distort the portfolio's asset allocation, leading to an increasing amount of equity exposure over time as fixed income assets are spent down while equities continue to grow. Notably, some research shows that despite the contrary nature of the strategy - allowing equity exposure to increase during retirement when conventional wisdom suggests it should decline as clients age - it turns out that a "rising equity glidepath" actually does improve retirement outcomes! If market returns are bad in the early years, a rising equity glidepath ensures that clients will dollar cost average into markets at cheaper and cheaper valuations; and if markets are good, clients won't have a lot to worry about in retirement anyway (except perhaps how much excess money will be left over at the end of their life).

Of course, the challenge to utilizing a rising equity glidepath strategy with clients is that many would obviously be concerned about having more equity exposure during their later retirement years. Yet the research shows that rising glidepaths can be so effective, they may actually lead to lower average equity exposure throughout retirement, even while obtaining more favorable outcomes. And ironically, it turns out that for those who do want to implement a rising equity glidepath, the best approach might actually be to explain it to clients as a bucket strategy in the first place!

Firm Culture Is Caught, Not Taught

(Lisa Crafford | Citywire RIA)

On the surface, it's easy to recognize the importance of having a strong company culture, both in promoting a high level of client service and attracting and retaining employees. Nevertheless, there is no single 'recipe' for building a strong company culture, which can leave firm leaders guessing as to whether they have a strong culture and how they might improve it.

Crafford suggests that strong culture is not just a matter of things that can be 'seen' (e.g., having a well-defined mission and values statement), but also in 'invisible' elements of how a firm operates. For example, firms with strong, positive cultures have employees who are proud to live out the firm's values, have meaningful relationships with other employees (and are willing to help those outside of their immediate team), are willing to give honest assessments of themselves and their peers (as well as give their input to management), and take their vacation days (as this shows confidence in their team to handle their work while they're away).

While firm leaders can 'teach' new employees the firm's mission and values, these other elements of a positive company culture come from lived experience in the workplace. For leaders looking to build (or maintain) a strong company culture, a first step can be to assess the current situation. For instance, the firm might survey employees on key elements of culture (e.g., on whether they've received constructive feedback recently and what behaviors they believe are rewarded in the firm), which could lead to surprises for leaders who might have expected different responses. Leaders can then use this information to identify strengths and gaps in firm culture (as culture is not just one monolithic 'score' but a collection of elements) and explore ways to improve on any weaker elements (which could include changes in firm policies, but also could be more intangible actions such as how leaders act and communicate with team members).

Ultimately, the key point is that for firm leaders, creating a strong company culture can often be more about 'showing' than 'telling'. Which means that by soliciting feedback from team members on where the firm's culture is strong (and where it might improve) and acting on this information, leaders can demonstrate to team members both that their opinions count and that the firm is forward-leaning when it comes to building a strong culture!

Using Firm Retreats To Build Culture, Capacity, And Vision

(Ray Sclafani | ClientWise)

To step back from the day-to-day grind of the (virtual) office, many advisory firms will periodically hold in-person retreats. Which not only can provide an opportunity for team members to build relationships outside of the office (which can be particularly helpful for virtual teams who don't see each other on a daily basis) but also a chance for the firm to step back and assess where it wants to go in the future.

Executing a successful retreat starts with the planning phase, including setting a clear, specific theme for the retreat (e.g., "better connecting with clients" or "accelerating organic growth"), crafting sessions that encourage open communication amongst team members, and connecting strategic discussions to team members' roles (so each individual knows how they fit into the firm's strategic direction). When constructing an agenda, organizers might consider including a mix of elements, including strategic planning, team-building, and professional development activities. These could include a 'state of the firm' discussion led by the founder or CEO (to give team members an idea of where the firm is today and where it's heading), sharing client impact stories (to help motivate the team), engaging in a vision alignment exercise (to allow team members to discuss what success for the firm will look like and any impediments to reaching these targets), team communication breakouts (to allow individual teams to focus on their unique needs), and/or sprint planning for the next 90 days (to leave the retreat with clear, measurable action items and timelines for completing them).

In the end, while a firm retreat requires an investment of resources (in both time and money), an effective retreat can pay dividends both in building ties amongst team members and in putting the firm on a strong course for the coming year.

Creating A "Culture Committee" To Improve Team Morale And Performance

(Jim Dunlop | InvestmentNews)

Whether a firm is in a rapid growth phase, recently merged with another firm, or perhaps just feels stagnant, taking action to assess and improve its culture can help ensure that performance and morale doesn't suffer during what can be stressful periods. In Dunlop's case, a merger with another firm led to struggles getting the two teams on the same page and eventual disengagement amongst employees.

With this in mind, his firm sought staff volunteers to form a "Culture Committee" to help boost team morale. The five team members who joined created a plan for the year focusing on three main elements: staff recognition and appreciation (e.g., collecting staff 'shoutouts' each week that are read aloud during the weekly team meeting), public service (creating quarterly volunteer opportunities for team members), and fun (team outings and in-office activities, from holiday parties and baseball games to craft projects).

Since implementing the Culture Committee, the firm has seen a boost in both team morale (with no employees leaving in that time) and has made additional high-performance hires (with the benefit of being able to talk openly about the firm's core values and desire to cultivate a positive culture). The firm has seen improved business performance as well, surpassing goals for organic growth and profitability, among others.

In sum, taking proactive steps to improve firm culture (whether in the form of a 'Culture Committee' or otherwise) can help a firm not just survive, but rather thrive during potentially stressful periods and increase the chances that it will be able to grow sustainably into the future!

8 Financial Tips For Clients Sending Their Kids To College This Fall

(Cheryl Winokur Munk | Barron's)

The weeks leading up to move-in for college freshmen can be a stressful time for families, as students make the transition out of their house and into their dorm. Beyond helping create a packing list, getting various financial matters in line can allow the student and their parents get off on the right foot.

To start, parents can help their student set up a checking account if they don't have one already so that the student can access cash and have a place to deposit income from any part-time jobs. Other key tasks is to check insurance policies (e.g., potentially updating an auto insurance policy if the student is bringing a car to another state) and obtaining helpful legal documents (e.g., medical power of attorney and a HIPAA authorization). Parents might also have conversations with their student about financial responsibility, including budgeting, credit card usage (and its potential consequences), the value of building a strong credit score, and retirement saving (perhaps offering to match student-earned funds in a Roth IRA?). And for their own part, parents can also take the opportunity to ensure that any 529 plans are allocated appropriately (likely conservatively given expected distributions in the near future) and to be familiar with the process for making qualified distributions from the plan.

In sum, while the to-do list for a family of a new college student is no doubt long already, addressing important financial issues (perhaps with the encouragement of their financial advisor?) can help lay the groundwork for the student to succeed financially (and, hopefully, academically) during the next four years.

Using The Common Data Set To Find Colleges With The Greatest Merit Aid Opportunities

(Lynn O'Shaughnessy | WealthManagement)

When parents and students hear the term 'financial aid' for college the first thing that comes to mind is likely to be need-based aid, which might feel out of reach for more affluent families (though it is often still worth filling out the FAFSA form just in case!). However, in recent years, increased competition amongst colleges (and the need for some to admit a full complement of students) has led to increasingly attractive offers of 'merit aid', which can greatly defray (or even totally cover) the cost of admission for the types of students they desire (with data from the National Association of College and University Business Officers showing that private colleges are now offering freshmen an average discount (taking into account both need-based and merit-based aid) of 56.3% off of their published tuition rate, with 90% of freshmen receiving some type of award).

A problem, though, is that it can be challenging for parents and students to learn which colleges might offer them a merit aid award (and how much it might be). That said, one available tool is a school's Common Data Set, a standardized document (which can easily be found by searching "X college common data set") that provides data on a wide range of topics, including (within Section H-2) financial aid. Such data points include the number for freshmen who received need-based and/or merit-based aid as well as the average amounts of this aid. This data can give families a better idea of how often a school gives merit aid and how generous an award might be; often, families might find that while particularly prestigious schools might be more stingy with merit aid (given they can attract a large number of applicants without it), lesser-known private schools are often more generous (creating a decision as to the tradeoffs between going to a seemingly more prestigious school with a high price tag or a still-strong school with a much lower net price).

Ultimately, the key point is that while many clients might have 'sticker shock' when looking at the listed price of college today, in reality the net price students actually pay (when taking need-based and merit aid into account) is often much lower, providing financial advisors with the opportunity not only to ensure families are aware of their potential to receive one or both types of aid but also in helping them navigate the financial tradeoffs (including the parents' ability to fund college given other financial goals and the implications for their students if they need to take on student debt) involved in the college decision.

Don't Let Others Write Your Story

(Ann Garcia | The College Financial Lady)

News headlines concerning college often focus on a small group of name-brand colleges (e.g., schools in the Ivy League) when it comes to admissions statistics, the cost of attendance, and job opportunities. Which might lead some students and their parents to assume that gaining admission to such prestigious schools is a 'golden ticket' (or even necessary) to be successful in post-college life.

However, Garcia suggests that going all-out to attend a name-brand school (no matter how much it will cost, or whether the student finds the school attractive in the first place) is not necessary to have success after graduation. For instance, while Ivy League graduates might have higher average starting salaries on the whole, this advantage goes away when adjusting for career choice. In addition, while it's possible that going to a prestigious school will help access post-undergraduate opportunities, it's not necessarily a requirement (e.g., the Harvard Business School class of 2026 includes students from 296 undergraduate institutions and last year's 32 Rhodes Scholars included students from 19 different colleges).

Rather than identifying target schools based on name alone, a key consideration is to find colleges from which a student will be more likely to graduate (and with a manageable amount of debt, if student loans are needed), as the college wage premium (i.e., the net financial benefits for those graduating from college compared to those who do not) remains attractive, whether they graduate from an Ivy League school or another institution. Considerations in this vein include whether a student will be able to succeed academically at a particular school as well as whether they can handle the cost of attendance over four years (which might make strong schools with generous need- and/or merit-based aid programs more attractive). And at a more basic level, a student might consider whether a school is a 'fit' for them (e.g., whether they would thrive in a smaller school with better access to professors or a larger school with a wider range of extracurricular opportunities), as this could influence success in college and the opportunities available to them.

In the end, while there are plenty of 'voices' telling aspiring college students and their families that they should be seeking admission into a narrow band of name-brand schools, students can achieve success in college and afterwards at a wide range of institutions. Which suggests that collegiate success is not just about where a student attends school, but also how (and whether) the student is able to make the most of their experience (from academic engagement to internships and networking) and prepare themselves for a successful career upon graduation.

---

We hope you enjoyed the reading! Please leave a comment below to share your thoughts, or send an email to [email protected] to suggest any articles you think would be a good fit for a future column!

In the meantime, if you're interested in more news and information regarding advisor technology, we'd highly recommend checking out Craig Iskowitz's "Wealth Management Today" blog.