Advisory firms post 39% margins as growth falls to 3.7%

A survey of 173 advisory firms conducted between January and April found operating margins near 38.6% while organic growth from incoming client assets fell to 3.7%.

The study, compiled by The Ensemble Practice using data collected by ActiFi, reported that margins have risen nearly 15 percentage points over the past decade. Average operating profit for participating firms was about $2.1 million and 87% of revenue came from asset-based fees.

The report said organic growth from new client relationships declined roughly six percentage points over the same period. Its statistical analysis indicated that about half of the variation in a firm’s organic growth in a given year can be explained by the firm’s profitability in the prior year.

Catherine Williams, chief operating officer at The Ensemble Practice, wrote that profitability provides capital and supports hiring and infrastructure investments. She warned that without sustained attention to long-term growth, profitability could be affected over time and that firm valuations may suffer if investment in team expansion and service models lags.

The study identified productivity and client selection as major drivers of profit. Compensation accounted for more than three-quarters of total expenses and nearly half of annual revenue. Advisor-specific compensation was the largest expense, at about 26% of revenue. Revenue produced by advisors compared with other employees rose to 3.8 times last year from 2.8 times in 2024.

Client mix varied by performance. Firms serving clients who generate roughly $5,000 to $10,000 in annual revenue-about $500,000 to $1 million in assets under management-posted the strongest balance of profitability and organic growth. Firms focused on the wealthiest clients, those producing more than $20,000 in annual revenue, reported 35.6% margins but only 1.7% organic growth. The report described moving upmarket as a “harvesting strategy” rather than a guaranteed path to growth.

Referrals remained the top source of new clients, but the report found slower expansion where firms relied exclusively on referrals. The fastest-growing firms, those with new-client growth above 7.7%, consistently generated leads through multiple channels, including advisor outreach, marketing investment and formal accountability systems. The report noted, “Referrals remain the highest-quality lead source, but exclusive reliance on them produces the slowest growth.”

Some firms have taken outside capital to diversify growth channels. Crewe Advisors, with offices in Salt Lake City and Scottsdale, closed a minority investment from Wealth Partners Capital Group and private equity firm HGGC last month. Managing partner Ryan Halliday noted the firm reached nine advisors and $3.5 billion in client assets largely through referrals and expects external financing to fund future M&A and marketing.

The report also highlighted market effects. Strong equity markets and asset appreciation lifted total AUM, which can mask weak performance in winning new client relationships. When accounting for departures and incoming assets, firms added a net 1.9% of AUM from new client relationships last year, a pace the report described as unsatisfactory for many firms. It also observed that leadership time spent on mergers and acquisitions at larger firms may divert attention from organic business development.

The findings appear in The Ensemble Practice’s “True Ensemble Data Insights Growth and Profitability Report 2026,” using data collected by ActiFi. The report frames the current environment as one in which advisory firms report strong profitability today while raising questions about whether that performance supports sustained organic growth.