New Clients Drove Record Revenues in 2011: Schwab RIA Benchmark Study

Despite economic headwinds, median RIA firms saw 12% revenue rise, AUM up 3.8%

Despite facing economic headwinds in 2011, independent registered investment advisors reported record revenues and asset levels last year, thanks to the addition of new clients and rising client retention rates, according to the Charles Schwab 2012 RIA benchmarking study released Tuesday.

With 1,025 firms participating in the study, median-size RIA firms reported a 12% increase in revenues along with a 3.8% rise in assets under management (AUM), thus marking a second consecutive year of record highs. Profits grew 14% at the median firm in 2011, mostly driven by revenue growth. Principal income (total base, bonus and firm profits per principal) was also up at $341,000, 5% higher from the previous year and 26% above 2009. Revenue per professional increased 6% from $354,000 to $374,000.

Net new client growth was reported at 4.7% at the median, flat versus last year, but when looking solely at new clients in the door, firms reported 8.2% growth. The 20% of firms that brought in the most new business added 14.7% or more clients. In addition, RIAs also marked a second consecutive year of greater client retention, maintaining more than 97% of existing clients in 2011.

“Client need is really driving loyalty,” said Jon Beatty, Schwab Advisor Services’ senior vice president of sales and relationship management, in an interview Tuesday in New York. “More referrals is where the engine of growth comes from.”

Client growth in this difficult economic climate shows that the RIA business model serves investors well, Beatty noted.

Challenges remain, of course. Advisors’ satisfaction with growth over the past three years was down slightly at 67% versus 69% in 2010, possibly due to longer sales cycles by RIAs, according to Schwab.

More than half, 55%, of RIAs said their No. 1 initiative in 2012 is firm growth. The top growth enablers were seen as quality of client service (81%), closing new client business (74%), new technologies (63%) and efficient operations (61%).

In addition, more firms are frustrated with their planning efforts, with 28% saying that strategic planning and execution are the greatest barrier to growth, topping marketing and business development. One in seven RIAs in the survey named strategic planning or succession planning as their top special initiative in 2011, compared with only one in 10 in 2010. Yet only 42% of firms have a written strategic plan in place.

Now that the study is complete, Schwab Advisor Services plans to give all participants an analysis of their business, including a customized report benchmarking each RIA to its peers.

 “We spend a lot of time in our business managing relationships and managing money, and we don’t spend as much time as we should analyzing how we do what we do, and measuring ourselves against the rest of the industry,” said advisor Suanne Ramar at Nelson Capital in a video interview about benchmarking. “When we saw the study, and where we fit in a number of different metrics, it drew our focus to areas that need additional attention.”

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Read Why You Should Benchmark, and Tips for Effective Benchmarking: Pt. 1 by Schwab’s J. Scott Slater at AdvisorOne.

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