Solo practitioners continue to make up the majority of firms in the wealth management industry, but team-based operations dominate in terms of services and assets, according to research firm Cerulli Associates and weath management firm Osaic.
As of the end of last year, more than half (54%) of advisors are solo practitioners while 46% operate as team-based, either as a silo practice, ensemble practice or mega ensemble, according to Cerulli's and Osaic's recently released white paper, "Top-Performing Teams: Exploring the Benefits and Approaches of Building a Team-Based Advisory Practice."
The paper also said that 94.5% of the largest advisory practices with more than $500 million in AUM operate in a team-based structure, compared to only 5.5% that are solo practitioners.
“One of the key benefits of multi-advisor teams is the diversity of complementary skills, experience, and expertise,” Asher Cheses, director at Cerulli Associates, said in a statement. “Combining each team member’s experience allows practices to leverage their individual strengths and provide specialized services, including lending, estate planning, tax services.”
Team-based practices, on average, offer 4.7 financial planning services and 2.9 high-net-worth services, compared to 4.5 and 2.2 for solo practices, the report said, adding that “an expanded set of services typically results in higher levels of wallet share, as clients tend to aggregate held-away assets with teams that can deliver comprehensive services.”
Team-based firms are also more likely to create organic growth given their ability to scale, the report said, noting that such operations are larger, with a median asset under management of $250 million, compared to $80 million for solo practices. They also brought in an average of $21 million in net asset flows in 2023, compared to just $8 million for solo practices.
Advisors who operate within teams also spend more time with clients, prospecting new clients and on practice management because many teams have client service representatives who streamline the day-to-day tasks, allowing advisors to focus on developing new relationships and client engagement, the report said As a result, team-based practices operate at a higher level of productivity, the report said.
The report said that team-based firms have a median AUM of $250 million, compared with $80 million for solo practices, and the advisors have a median of $100 million in AUM per advisor and an average client size of $1.6 million, compared with $72 million AUM and an average client size of $1 million for solo practices.
Team-based practices also have a leg up on solo operations in attracting, developing and retaining talent, the report said. The report noted that 45% of team-based practices have at least one junior advisor on staff, compared to only 13% among solo practices. “Teaming provides natural career paths and professional development opportunities for junior advisors and younger staff in support roles who can work alongside senior advisors to gain valuable experience and accelerate their career.”
Having junior advisors and next-generation staffers also creates a path for succession planning. Roughly one-third (38%) of advisors, collectively managing $11 trillion in AUM, are expected to retire in the next 10 years, with more than a quarter without a succession plan in place, Cerulli said. “Integrating younger advisors and potential successors onto a team early in the process is key to a smooth transition, mitigating flight risk among clients once the lead advisor retires,” the report said.
Cerulli, however, cautions that while teaming has clear benefits, it is not for everyone. Solo practices, the firm noted, have unique advantages, such as greater independence, autonomy and lower overhead expenses. And as teams grow, the report said, “they risk facing increased complexity, internal conflict, inefficient decision-making, and differences in long-term vision for the practice.” And so, “as teaming gains traction across the industry, advisors need to fully understand the potential challenges and benefits of joining forces,” Cerulli said.