With the current economic challenges—low growth, sovereign debt woes and volatile markets—it’s easy to overlook the welfare of an important component of the financial services industry—the financial advisor. How is he or she faring in this unsettled environment, characterized by a weak, prolonged recovery that isn’t always conducive to investing? How is the book of business? Are revenues and profits up? What about AUM or number of clients?
According to the Rydex|SGI AdvisorBenchmaking survey conducted this spring, and no doubt much to the relief of advisors, businesses are holding their own, thank you very much. Despite the recent market turmoil, advisors—accustomed to putting their clients’ interests first—are demonstrating the value in continuing to keep the needs of their business top of mind. A successful practice is essential not only to keep the lights on but to achieve more worthy goals—for example, the opportunity to focus on dispensing investment advice and to present a healthy image to clients and other business relationships.
In 2010, RIAs reported their highest level of assets under management (AUM) in the history of the survey, with median advisor AUM reaching $208 million. As shown in the table below, after suffering a drop in AUM in 2008, the advisor industry benefited from significant AUM growth in subsequent years, with 28% growth in 2009 and almost 20% in 2010.
With the S&P 500 up 15% in 2010, much of the increase in RIA assets was associated with positive market performance. However, RIAs’ efforts did help boost bottom lines, as AUM levels rose more than stock market performance (see chart below). Many advisors were successful in raising new assets, and their asset allocation and investment management skills may also have helped them retain current assets.
Increased assets helped boost revenue to a new record in 2010. The average RIA’s revenue increased to $1.737 million on median, a 17% increase over the 2009 level. The prior record was $1.668 million in 2007, just before the financial market crisis. Expenses, meanwhile, increased less than revenue—7% in 2010, to $1.257 million on median.