Over the past five years, advisor revenues, assets under management, and numbers of clients in the financial advisory business have gone up—way up. But the natural pains that accompany rapid growth are also clear: margins are under pressure, owners’ income has stagnated, and growth itself is now slowing, according to the recently released 12th edition of the 2006 Moss Adams LLP Financial Performance Study of Advisory Firms.

“This is the first time we’ve seen such dramatic growth in the top line without a corresponding improvement in Key Performance Indicators that measure profitability and productivity,” said Mark Tibergien, principal of Moss Adams, in a news release.

In order to service larger numbers of clients in a more demanding environment, practices have added more staff. Moss Adams researchers found that the leverage from these new hires has boosted the top line across the industry, but the cost of doing so has wreaked short-term havoc on the economics of many practices that has yet to level off in the form of long-term profitability.

But Tibergien cautions firms against interpreting these findings as an indication that they need to trim back their staff. “The problem isn’t that firms have too much staff,” he said. “It’s that their growing staff needs better management.”

Included in the 2006 edition are specific suggestions designed to benefit any practice no matter where it is in the practice life cycle. The study identifies five distinct evolutionary stages of advisory firms, from early solo to market dominator.

“We’ve long suspected that advisory firms grow along a clear evolutionary path,” said Tibergien. “This year, we’ve been able to quantify those evolutionary stages. Now we can show advisory firms exactly where they are along the growth curve and help them run their practices more profitably at that stage as well as overcome the challenges of breaking through to the next level. It’s a quantum leap forward in understanding why some firms prosper and others don’t.”

Moss Adams received a record level of participation this year. More than 1,000 firms took the survey, which was online for the first time.

“The high level of participation yielded multiple perspectives for analysis that make this year’s study the most comprehensive benchmarking tool to date,” said Tibergien. “It’s a must-read for anyone interested in having a successful advisory practice.”

SEI Advisor Network and JPMorgan Asset Management were the sponsors of this year’s study.

Moss Adams LLP is the twelfth largest accounting and consulting firm in the United States. The company maintains a team of industry specialists providing consulting, accounting, tax, and valuation services to hundreds of financial planners, investment managers, independent trust companies, independent broker-dealer firms, and other financial services organizations throughout the U.S., Canada, and Australia.