“Good times, bad times, advisors have proven that their business model is all-weather.”
That’s what Jonathan Beatty, senior vice president of sales and relationship management at Schwab Advisor Services, likes to say about the proven track record of independent financial advisory firms.
According to results from Schwab’s 2016 RIA Benchmarking Study, independent financial advisory firms reported that they have maintained a 10-year growth trajectory despite numerous and varied investment environments.
For the past 10 years, Schwab has conducted the study, the largest of its kind focused exclusively on RIAs. The results of the 2016 study of 1,128 firms representing nearly three-quarters of a trillion dollars in AUM was released on Friday. The 2016 study reflects RIAs’ experiences in 2015.
“We know ’15 was not a great year for the market,” Beatty said during a visit to ThinkAdvisor’s New York office. “It was a mostly sideways market in 2015, and there was certainly some volatility along the way there.”
Despite the recent sideways market, advisors are still delivering a compelling value proposition to clients that’s illustrated in firms’ growth, according to Beatty.
Over the past year, study results show that the growth trajectory for firms’ AUM and revenues eased somewhat but remained positive. AUM rose to $588 million in 2015 from $365 million in 2011, at a median compound annual growth rate (CAGR) of 9.2%, and revenues grew to $3.6 million in 2015 from $2.3 million in 2011, at a CAGR of 10.9%.
The study finds that the advisor-client relationships are a bedrock of firms’ strength and resilience, and have been central to driving this growth during tumultuous market environments.
“When we looked at the study we saw again tremendous retention rates at 97%,” Beatty said. “I think that’s the fifth year in a row that they’ve been in the high 90s in terms of retention. And a proof point that they are providing a strong value proposition to their clients and have spent maybe more time getting clients through this period.”
In addition to client retention rates remaining sky-high at 97%, average client account size increased by nearly a quarter (22%), which shows that advisors spent more time reassuring clients and expanding the scope of their relationships.
The strength of the advisor-client relationship is also illustrated through the large number of referrals within new client acquisitions.
“We know that advisory firms grow through referrals from existing clients and centers of influence,” Beatty said. “We can see that they’re still acquiring new clients – maybe not at the clip that they were in a better market, but they’re still having success there.
Last year, roughly 75% of new clients [at firms with $100 million or more in AUM] came through referrals, according to the survey. While client acquisition and retention are a “relentless focus” of advisory firms, according to Beatty, firms are also focused on talent acquisition to propel firm success.
At mid-sized firms with $500MM-$750MM in AUM, the study finds that 61% of those surveyed plan to add relationship managers or investment professionals this year and 57% plan to add support staffers.
“We see through the study that talent is a critical aspect of growing a firm,” Beatty told ThinkAdvisor. “… we also see advisors bringing in more specialization. I think that’s about creating additional services for clients.”
According to the study, more than 80% of the firms surveyed strategically hire team members with unique qualifications, whether that be a CFP, CFA, CPA or J.D. designation.
“These are professional specialties that allow firms to add more and more services,” Beatty said. “We know it’s a competitive environment out there, there’s no doubt. And advisors are responding to that by augmenting their offering in ways that keep them on the cutting edge.”
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