Registered investment advisors (RIAs) continued to set the pace for growth in the industry in 2012, according to results from the Schwab Advisor Services annual RIA Benchmarking Study i. More than 1,000 RIA firms, representing nearly half a trillion dollars in assets under management (AUM), participated in the annual study, the largest of its kind focusing exclusively on RIAs. Results revealed that the median RIA firm in the study ended 2012 with $572 million in AUM, an increase of 13.3 percent over the previous year, while revenues grew by 7.1 percent to $3.4 million in 2012. Based on the study findings, by the end of 2014 about one-third of advisor firms will have doubled in size over the previous five-year period ii.
“It’s gratifying to see the continued robust growth in the RIA industry in 2012,” says Jonathan Beatty, senior vice president, sales and relationship management, Schwab Advisor Services. “Several factors are helping to support industry health and growth including steady investment performance across all firms. We’re also seeing that quality client service and an emphasis on relationships remain key drivers for client retention and of overall RIA growth and success.”
The ways in which firms grew in 2012 varied but themes were prevalent. Investment performance across peer groups accounted for 8.5 percent of all growth last year, reflecting sound strategies and a broadly improved market. Net organic growth – the change in assets from existing clients, new clients and assets lost to client attrition – was another key driver, accounting for 4.5 percent of AUM growth at the median firm.
The Power of GrowthRIA firms in the study have seen consistent growth over the past three years (2010-2012), however, some firms have demonstrated significantly greater net organic growth, the area over which they have most control. These fastest-growing firms iii had a median net organic growth of 15 percent, which is five times greater than all other firms at the median. The fastest-growing firms generated an average of 36 percent more new clients from referrals than all other firms. While advisors think about growth differently, all recognize that growth brings the benefits of scale which, as shown in the study, are compelling and tend to increase with size.