‘Time of Abundance’ for RIAs: Schwab

Schwab’s 2015 RIA Benchmarking Study found that nearly half of participating firms have doubled their revenue since 2009

Jon Beatty of Schwab. Jon Beatty of Schwab.

Independent registered investment advisors have reached a place of strength and confidence, according to a new study released on Monday from Charles Schwab.

The 2015 RIA Benchmarking Study shows that RIA firms’ revenue and profitability have reached all-time highs.

“It really is a time of abundance for the RIA industry,”said Jon Beatty, senior vice president of sales and relationship management for Schwab Advisor Services, during a visit to ThinkAdvisor's New York office.

The 9th annual RIA Benchmarking Study, which contains self-reported data from 1,007 firms that custody their assets with Schwab and represent nearly three-quarters of a trillion dollars in assets under management, found that nearly half (42%) of the participating firms have doubled their revenue since 2009.

In addition, according to the study, more than half of participating firms have grown their assets by at least 75% in the last five years – representing a compound annual growth rate (CAGR) of 12.1%.

Along with AUM growth, the study found that profitability — measured as standardized operating margin — has risen 36% over the last five years and now stands at 27% for the median firm in the study.

“We know that some of that [success] has to do with the market and the performance in the bull market,” Beatty told ThinkAdvisor. “But, really where we find reassurance around the success is in the client acquisition statistics.”

Over the past five years, the number of new clients has surged by more than 24% for half of the study participants.

The study found that top-performing firms grew their client base by 10% in 2014, while the median firm added 5%.

“In all peer groups, advisors are having success in acquiring clients,” Beatty said, adding that “the best performing firms in the study in the past five years have almost doubled the number of clients that they serve.”

RIAs are also taking on larger clients, the study finds.

“In all peer groups, [RIAs] are going upmarket in terms of the size of household they serve,” Beatty told ThinkAdvisor.

According to the study, the average account size is now $1.9 million — $3.9 million among the top-performing firms.

Not only are firms having success with client acquisition, but retention is also at an all-time high, Beatty said.

Participating firms reported a median 97% client retention rate year-over-year – showing they can successfully win and keep the trust of existing clients.

Furthermore, among existing clients, firms are increasing share of wallet.

“They’re capturing share of wallet from existing clients at a nice strong pace,” Beatty told ThinkAdvisor.

The study found that the top-performing firms increased that share by 4% in 2014.

“When you look at the fact that [RIAs] are bringing in new investors at a tremendous pace, it reassures you of the confidence in the industry,” Beatty added.

The study shows that the combination of new assets and larger account sizes has helped drive firm revenues over the past five years.

According to the study, the median firm saw revenue CAGR of 13.6%, while top-performing firms experienced 18.8% revenue CAGR.

Larger account sizes have also resulted in improved revenue per professional. The median firm reported $554,000 revenue per professional in 2014, while the top-performing firms indicate revenue of more than $800,000 per professional.

As many independent registered investment advisors firms surpass the 20-years-in-business mark, this isn’t the climax in the RIA firms’ stories. The RIA Benchmarking Study finds that there’s still room for RIAs to grow.

“We still see a huge opportunity for registered investment advisors,” Beatty told ThinkAdvisor. “By our estimates, [RIAs] manage about 7% of the affluent investors in the United States. That means there’s basically $23 trillion of affluent investor dollars out there as a market opportunity for them.”

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