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.