Page 23 - Investment Advisor October 2022

There are only a small number of ways in which an RIA firm panies before creating a plan and “focus on your weaknesses
can grow, DeVoe said. They are market performance, adding first,” especially those things that he said may be “constraining
new clients, asset movement among existing clients, M&As, your ability to capitalize on the things that you’re good at.”
and one-off events that raise added capital, he said. It’s important to make sure that an organization’s plan
Noting that his firm consults on many M&A transactions has “foundational elements” in place, warning that without
valued between $250 million and $3 billion, DeVoe pointed out “certain underpinnings … the entire structure will collapse as
that all too often, while “we’re working with a seller, they get you build it.” Other important pieces of the puzzle, he said:
pretty far down field and you had a transaction and they start Figuring out what kind of clients your company and its advi-
thinking” about how their staffs will respond. sors have and want to be focused on, and narrowing down the
RIA firm owners are often worried about what the impact services that it specializes in.
will be on their advisors and other staff. But DeVoe tells them
the transaction is going to be great for their staff, he noted. For Organic Growth
one thing, by joining a bigger firm that’s growing faster, their Despite the ongoing COVID-19 pandemic and other challenges,
career paths will become better and the “compensation picture RIA firms saw “tremendous growth” in 2021, according to Charles
is better” as well, he said. Schwab’s 2022 RIA Benchmarking Study. It was an “exceptional
Especially now, amid the Great Resignation in which many year” for RIAs in 2021, according to Lisa Salvi, managing director
people are leaving their firm or looking to do so, he said break- of business consulting and education at Schwab Advisor Services.
ing the news of an acquisition to advisors and other staff in the “You continued to be there for your clients and you leveraged
right way is crucial. a lot of the learnings and experiences from the pandemic over
One thing to avoid is presenting them with nine or 10 bullet the past two years to drive absolutely incredible performance
points on how the transaction will help them, he said. As long when we look at nearly any business metric,” Salvi said. (The
as you have figured out why it’s important for the firm to grow, study includes self-reported data from 1,218 firms with $25 mil-
“you’re in a position to talk to your staff and get them to engage lion or more in assets custodied with Schwab or TD Ameritrade.)
[and] your rationale for growth really needs to support your Organic growth, excluding market performance, played
company’s purpose,” he noted. “a pivotal role” in RIA growth in 2021, the research found.
If the owner of an RIA firm just dwells on the growth in and “Driving organic growth were increases in assets from new
of itself, he warned that their engagement level may not be very clients and assets from existing clients, both of which also
high. It’s much smarter to say something like: “Hey, you know reached 5-year highs,” Schwab said.
what? We’re doing something really, really good for the U.S. What factors are playing a key role in organic growth? “Having
investors overall. ... We’re taking care of our friends to help them intentional and documented strategies helped firms achieve strong
manage their money better. And frankly, this is a good thing.” client acquisition results. Firms with written marketing plans,
ideal client personas, and client value propositions attracted more
Succession Planning new clients than firms that didn’t have all three in place. Firms
Noting that he’s done “a lot of succession work over the last with written referral plans gained more new clients from those
19 years, working with advisors to try to put these succession channels than firms without referral plans,” the report stated.
plans in place,” DeVoe said the industry is, however, still “fail- Schwab zoomed in on the role of organic assets growth gen-
ing in that regard [and] 30% of advisors are challenged putting erated by RIAs’ existing advisors and clients and found that this
succession plans in place.” figure jumped to 8.2% in 2021 from 6.0% in 2020 for firms with
What DeVoe determined is that many RIA owners “just get under $250 million in assets. Organic growth for firms with over
overwhelmed by the complexity” of a succession plan, he said. $250 million in assets increased to 7% in 2021 from 4.5% in 2020.
The focus is often on the client list, website and social media For firms with performance that put them in the top 20% of all
presence, “Pretty soon, you get overwhelmed and you’re like, RIAs surveyed, organic growth rose to 16.1% vs. 9.2% in 2020.
‘wow, where do I even get started with this?’” he said. Overall, the median RIA firm ended 2021 with $545 million
What is needed is a methodical approach to “start think- in assets under management, with AUM up 19.5% from 2020
ing through this, to get started [and] to start putting action in that led to a five-year compound annual growth rate of 14.1%,
place,” he said, adding: “Your goal is to have [a] comprehensive, according to Schwab. The median RIA firm ended 2021 with
integrated plan. This is how you drive long-term growth for $3.2 million in revenue, up 23.2%, with the five-year CAGR up
your organization.” 11.3%. Meanwhile, the number of clients for the median RIA
DeVoe also advised RIA firm owners to evaluate their com- firm was 307, up 6.2% with the five-year CAGR up 5.1%.

OCTOBER 2022 INVESTMENT ADVISOR 21