RIAs must hold fire on chopping expenses

For RIA executives, the short-term downturn is starting to feel long, and they are ready to reach for the obvious fix – cut expenses and go into survival mode.

Hold fire!

Instead of listening to neural survival instincts, channel portfolio management principles. It makes as much sense to cut talent or growth efforts as it does moving client assets to cash right now.

If you're still determined to better align revenues and expenses, then cut your own salaries – but only to facilitate essential reinvestment in 2023.

There I said it. I hope we can still be friends. I'm counseling you to accept more short-term personal pain to address the pain of sapped profitability.

The sacrifice will allow your RIA to reinvest in its headcount, marketing, capacity and productivity levels.

Accepting short-term pain is a time-tested means of boosting revenues, marketshare and profitability long-term – not just in theory, but in real time.

In fact, from 2008 to 2011, the typical advisory firm achieved revenue growth of 14%, according to research I helped prepare. For the purpose of the study, a special cohort called “Standout Firms” hit a staggering 30% in revenue growth – with profitability levels telling a similar story, according to the FA Insight Annual Study of Advisory Firms.

Well-worn path

Hunkering down into wartime mode in an economic downturn can drag on performance for years to come. As the market rebounds, the firm must…