A study exploring the most potent use of fund managers' and investment professionals' time brings up some striking conclusions.

Time is money, the saying goes and there is usually plenty of evidence to back up that saying. Over at SEI, the US-headquartered provider of investment and technology solutions, it has recently issued a report that shows a big gap in the asset-gathering potency of managers depending on how they make use of their time.

The report, based on data and analysis provided by FP Transitions, an independent practice management consultancy, showed that on average, client managers add twice as much in assets under management ($14.5 million) annually when compared to investment managers, who add $7.2 million in total asset growth. The research examines how two advisory business models compare in terms of current operations, long-term growth and potential future value through data collected over the last 10 years from more than 8,000 advisory practices.

The report analyzes the operations of “investment managers”, advisors who focus principally on the investment process, and “client managers”, those who delegate the investment management function to a third party and concentrate on gathering and building relationships. Despite the similarities found between the IMs’ and CMs’ practice models, including number of employees, how they are led by advisors of similar age, experience, and number of years as independent advisors and serve a comparable client demographic, the greatest disparity between the two models lies in advisors’ activities and how they devote their time.

“It is especially noteworthy that over the course of 10 years, through the accumulated value of new client activity, the average advisor following a business model focused on client relationships could potentially add over $1 million to the value of his or her practice, compared to the advisor focused more on investment management,” Brad Bueermann, CEO of FP Transitions, said in a statement about the report. 

Maximum impact
IM advisors report that they spend more than one-third of their time (37 per cent) on investment management activities like research and client portfolio management while CMs spend less than three per cent of their time on these activities, according to the data from FP Transitions.

Furthermore, CMs spend more than half their time (56 per cent) on client acquisition and client management compared with IMs spending just 30 per cent of their time on the same activities. With 34 per cent of time saved and not spent on investment management activities, CMs spend nearly twice as much time as IMs on client meetings (37 per cent and 20 per cent, respectively) and prospecting new clients (12 per cent and six per cent, respectively). The way that advisors spend their time, whether it is focused on investment activity or clients, makes a difference in the long-run in building a more profitable business, according to the data.

The FP Transitions data also reveals that the type of activity financial advisors focus on affects their client growth and in turn, their asset growth. Although the IMs surveyed had a higher average AuM per client ($468,960) than CMs surveyed ($321,817), CMs averaged 120 more clients (285 clients) than IMs (165 clients).

The study found that advisors who focus on clients add 14 new clients per year on average for a total of $4.5 million in new assets. On the other hand, advisors that focus on investment management activities gain only four new clients per year on average for a total of $1.9 million in new assets. When looking at the new assets gained from existing clients, in addition to that of new clients and portfolio growth, the total asset growth rate in AuM was 18 percent for CMs versus only 11 percent for IMs.

Additional analysis can be found in the report, A Data-Backed Solution to Building a More Profitable Advisory Business, published by SEI Advisor Network and FP Transitions. In addition to data provided by FP Transitions, the report also includes analysis of proprietary data from SEI Advisor Network on the state of the industry and assessment of advisors’ own businesses.