Schwab Reveals Secret of Fastest-Growing RIAs

The median RIA ended 2012 with $572 million in AUM, up 13.3% over 2011, says Schwab survey

The fastest-growing registered investment advisors in 2012 saw net organic growth rise five times faster than all other firms because they excel at delivering "the client experience" and as a result get more referrals, according to a Schwab Advisor Services benchmarking survey released Wednesday.

Jon Beatty, Schwab Advisor Services senior VPRegardless of their size, these fast-growing firms generated an average of 36% more new clients from referrals than all other firms, said Jonathan Beatty (left), senior vice president of Schwab Advisor Services’ sales and relationship management, in an interview in New York on Tuesday. In addition, he noted that the top third of RIAs in the survey reported that they were on track to double their assets by 2014.

Of approximately 1,000 RIAs surveyed, the top 20% saw 2012 net organic growth (defined as the change in assets from existing clients, new clients and assets lost to client attrition) of 15% of AUM growth. This compares with 2.9% net organic growth for all other firms in the study with $250 million or more. The top firms reported more referrals than other firms (see chart) whether they managed $250 million to $500 million, $500 million to $1 billion or more than $1 billion.

“These firms have black-belt status at relationship marketing,” Beatty said, noting that the fastest growers understand their specific value proposition and ideal client profile, which makes them better able to generate more referrals through strong client and community relationships. “The client experience floats all the way through the system.”

The median RIA firm in the Schwab study ended 2012 with $572 million in AUM, an increase of 13.3% over the previous year, while overall revenues grew by 7.1% to $3.4 million in 2012.

Beatty added that revenues should hold about flat this year.

“Based on AUM, we’re predicting 7% revenue growth for RIAs in 2013 given normal market conditions,” he said.

Schwab Advisor Services' fastest-growing RIAs: Click to expandInvestment performance across peer groups accounted for 8.5% of RIAs’ growth in 2013, “reflecting sound strategies and a broadly improved market,” according to a Schwab statement.

Top 20% Are Better at Getting Referrals

The ability to offer outstanding client experiences to “the right kinds of clients” was a key trend reflected in the survey results, said Schwab Advisor Services.

“RIAs that excel at relationship cultivation benefit more from referrals from existing clients and centers of influence (COI),” according to the published survey results. “Across all peer groups, these fastest-growing firms acquired referrals from COIs at a higher rate than all other firms do from COIs and existing clients combined.”

Acquisitions Are a Theme

Although client referrals and COI are a primary channel for RIA growth, according to the study, another theme that emerged was the number of firms looking to achieve growth by mergers or acquisitions.

“Approximately 25% of RIAs in the $100 million to $1 billion AUM segment indicated they are actively seeking to acquire another firm,” Schwab Advisor Services reported. “Among firms managing $1 billion or more in AUM, 34% are actively looking to acquire another firm. Among the fastest growing firms, 1 in 5 reported plans to acquire another RIA while 1 in 3 of all other firms is looking to acquire.”

Surprisingly, Beatty said that the fastest-growing RIAs were the least interested in acquisitions.

“We see less interest in M&A from the fastest-growing firms because they’re having such success from organic growth,” he said.

In a statement accompanying the survey results, Beatty noted that a desire to grow was an undeniable trend in the RIA space.

“Although we understand growth is not the strategy of every RIA, we do see the overall industry trend is a disciplined approach to growing and to maximizing financial results,” he said. “Interestingly, we see many similarities in the practices and operation of the fastest-growing firms that lead to growth, including attracting and retaining clients through existing client referrals and their centers of influence.”

Another surprise in the survey results was the relative lack of advisor interest in technology integration — most RIAs dealt with that hot-button issue in 2011.

“Finally, technology integration appears to be reaching a critical mass, with just 38% of study firms citing it as a challenge to their firms, versus 59% saying it presented a challenge in the previous year,” Schwab Advisor Services reported. “Additionally, digital strategies in 2013 are viewed as a means to communicate and enhance the client experience. From an operational standpoint, 86% of firms now invest or plan to invest in the next 12 to 18 months in workflow technology; 73% now invest or plan to invest in mobile technologies; and 67% invest now or plan to invest in cloud-based technologies.”

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