Registered investment advisors reported record growth and profitability, according to the 2014 RIA Benchmarking Study by Schwab Advisor Services.
Profits were highest since the study’s inception in 2006.
More than a third of the RIA firms that participated in the benchmarking study have doubled their assets under management and revenues over the past five years. RIA firms of all sizes have seen significant growth since the market lows of 2009.
And the study noted that even more firms are on track to double within the next two years.
“RIA firms are thriving,” Jonathan Beatty, senior vice president of sales and relationship management at Schwab Advisor Services, told ThinkAdvisor.
The study reported a median 12.8% compound annual growth rate in AUM and 13.6% in revenue. The median revenue climbed to $3.3 million, and one-third of firms earned more than $5 million in revenues in 2013.
What’s the secret to success? The latest data showed a number of strategic and operational characteristics that are shared among the best-managed firms.
Here are the top five strategic initiatives from this year’s study:
- Acquire new clients through client referrals
- Acquire new clients through business referrals
- Enhance strategic planning and execution
- Implement a client segmentation plan
- Recruit staff to increase firm’s skill set and capacity
The best-managed firms that are outperforming their peers attribute their continued growth year after year to three specific things: building strategic management practices, focusing on high-quality organic growth and creating opportunities for top advisor talent.
“Those three characteristics really are the secret recipe for success for many of our top-performing firms,” said Beatty in an interview. He added, “What’s exciting is it’s not just about growth. They’re also spending time and making sure they’re creating disciplined growth and doing the things that can institutionalize the business to find scale and efficiency.”
These best-managed firms represent advisors in the study who are in the top 20% of qualifying firms, which is calculated after removing those with less than $1 million in revenue or fewer than two professional staffers, and then ranked by productivity, profitability, revenue growth and net asset growth.
The 2014 study comprised self-reported data from 1,132 advisory firms, representing nearly three-quarters of a trillion dollars in AUM, that custody their assets with Schwab. Participant firms represent various sizes and business models and are categorized into 12 peer groups — seven wealth manager groups and five money manager groups, by AUM size. Since the inception of the study in 2006, more than 2,800 firms have participated, with more than half being repeat participants.
Focusing on Referrals
Referrals emerged as the chief component of organic growth in the 2014 study.
“The study says 80% of advisors tell us that referrals are their number one source of new clients, but they also tell us it’s their number one priority in terms of how they’re trying to improve their businesses,” Beatty said in an interview.