Advisory Firms Should Look Beyond AUM to Test Profitability and Capacity

Assets under management can climb while an advisory firm’s economics weaken. Market gains may lift AUM even as margins thin, teams take on more work and pricing falls out of step with service. For firms planning for 2027, the useful question is whether growth is producing durable revenue and capacity, not simply a larger asset base.

The gap between growth and profitability stands out in recent industry data. The Ensemble Practice’s 2026 True Ensemble Growth and Profitability study, based on 2025 financial data from 173 advisory firms, found an average operating profit margin of 38.6%, while organic growth from new clients remained near historic lows. Coverage of the study’s findings highlighted that tension: firms can post strong profits while their organic growth engine stalls.

That makes a year-end business review more useful when it examines how revenue is earned, what it costs to serve clients and how work is distributed. Practice leaders Dana Burkhardt, Mary Mock and Joey Small point to measures that can expose pressure before AUM alone does.

Measure the economics behind asset growth

Operating profit margin—the share of revenue remaining after operating expenses—is one place to start, said Burkhardt, vice president and head of business consulting at AssetMark. She also tracks revenue per household, revenue per team member and the actual cost of delivering promised service. Together, those figures show whether a bigger firm is becoming more productive or simply adding workload.

Firms should also separate growth from new client relationships and net new assets from gains caused by markets, and monitor how well they retain existing clients. As Burkhardt put it, “AUM doesn’t cover the bills, revenue does.” Growth matters when it strengthens the business; if it requires the advisor and team to work harder just to keep pace, the asset total gives an incomplete picture.

Benchmark comparisons offer context, though they don’t explain the economics of any individual firm. The median advisory firm recorded a 27.8% operating margin, according to the latest InvestmentNews Advisor Benchmarking Study findings. That was nearly double the margins of US accounting and law firms. The comparison points to the sector’s high profitability, while the wider range between firms makes it important to understand what drives each practice’s own results. The benchmarking findings provide the underlying comparison.

Connect client mix to service and pricing

Capacity is another part of the audit. Mock, senior vice president and head of distribution at Touchstone Investments, recommends tracking the advisor-to-household ratio to see whether advisors carry more relationships than they can serve well. A high load can affect both efficiency and service quality.

She also points to the dollar-weighted average age of the client book. This measure weights clients’ ages by the assets they hold, helping a firm assess whether its assets are concentrated among retirees drawing them down or whether it is developing relationships with younger investors. A break-even analysis adds the revenue threshold needed to cover operating costs. Those measures can inform long-term planning, including succession, a merger or a future sale, Mock said.

Client segmentation helps translate the data into operating decisions. Mock recommends reviewing how households are distributed across AUM bands: that mix informs service levels, which shape how the team spends its time, and that time should inform fees. Pricing may become inconsistent as advisors make concessions to win clients or accommodate individual arrangements. Revisiting those terms can show whether fees still match the work being delivered.

Burkhardt describes the same review as a test of alignment among the clients a firm serves, the fees it charges and the service it provides. Asset size alone doesn’t capture relationship complexity or the time a client requires. Firms that compare those factors can identify where service commitments, pricing or staffing need to change.

Find the bottlenecks before adding activity

Small, a private wealth advisor with Ameriprise Financial in Little Rock, Arkansas, has seen firms grow assets while becoming more complex and less efficient. He looks for stronger margins, referrals generated through client experience and leaders who can make decisions effectively. Those are signs, in his view, that a practice is building an enterprise rather than accumulating assets alone.

When growth slows, firms may assume they need more marketing. Small argues that attention can be the tighter constraint: advisors need to know where their time goes and whether their strongest performers are focused on high-value work. “Growth is usually held back by misallocated attention long before it’s held back by a lack of opportunity,” he said.

A workflow review can help locate that lost capacity. Burkhardt recommends identifying tasks on an advisor’s desk that someone else could handle, clarifying blurred responsibilities and checking whether the firm uses technology it already pays for. The findings can guide decisions about delegation, hiring, fees and service commitments. AssetMark advisors can use its modeling tools to assess these measures; Burkhardt also suggested that other advisors use AI tools to capture and analyze their data.

That suggestion comes as AI becomes part of firms’ efficiency discussions. AssetMark’s 2026 Advisor Insights: Artificial Intelligence Report surveyed 400 US-based financial advisors and found that AI is saving advisors more than 200 hours a year, according to coverage of the report. The hours saved matter most when firms decide how to use them; automation alone doesn’t resolve unclear roles or misplaced attention.

Turn the review into a short operating plan

The harder part is often follow-through. Burkhardt said client demands can crowd out work on the firm itself, so she recommends treating business planning with the same regularity as client reviews. Her advice for 2027 is to select two or three changes that could most improve profitability and capacity, assign owners, and track progress monthly through a 90-day plan.

Mock likewise said daily operations often displace strategic work. She recommends reviewing how the team spends its time, scheduling planning days away from routine duties and aligning staff around the year’s priorities. Outside accountability can help keep those commitments active.

Small’s caution is that a long list of initiatives can look like progress without changing the business. Firms need to decide which activities no longer deserve time, capital or attention. The clearest year-end audit may therefore end with a smaller set of commitments—and a deliberate decision about what the team will stop doing.