RIA Firms are on Pace to Double Their Business

Fastest growing firms are rapidly growing assets and hungry to buyout competitors.
By MainStreet Team ,

By Hal M. Bundrick

NEW YORK (

MainStreet

)--These are glory days for registered investment advisors. By the end of next year, nearly one-third of RIA firms will have doubled in size over the previous five years, according to the just-released Schwab Advisor Services annual RIA Benchmarking Study. The median RIA firm profiled by the research ended 2012 with $572 million in assets under management, an increase of 13.3% over the previous year, while revenues grew by 7.1% to $3.4 million.

Investment performance accounted for 8.5% of growth last year, while organic growth -- the net asset accumulation from new and existing clients, less assets lost to client attrition - accounted for 4.5% of AUM growth at the median firm. According to the study, the fastest-growing firms had a median net organic growth of 15%, five times greater than all other firms at the median, generating an average of 36% more new clients from referrals than all other firms.

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"The power of growth is evident in the results of our annual study," says Jonathan Beatty with Schwab Advisor Services, "and although we understand growth is not the strategy of every RIA, we do see the overall industry trend is a disciplined approach to growing and to maximizing financial results. Interestingly, we see many similarities in the practices and operation of the fastest-growing firms that lead to growth, including attracting and retaining clients through existing client referrals and their centers of influence."

The fastest-growing firms generated more new business from referrals than their peers, with nearly three times more net asset flows from new client acquisition. Meanwhile, the hunt for whales paid off big for the largest firms. Clients with assets of more than $5 million accounted for half of all revenues at RIAs with $1 billion or more in AUM, while they accounted for just one-fifth of the revenues at firms with $100 to $250 million in AUM.

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Asset growth for RIAs is also the result of an active merger and acquisition market. Nearly one-quarter of RIAs in the $100 million to $1 billion AUM segment said they are actively seeking to acquire another firm. Among firms managing assets of $1 billion or more, 34% are actively shopping. And among the fastest growing firms, 20% reported plans to buy another RIA, while one-third of all other firms are looking to acquire.

More than 1,000 RIA firms, representing nearly half a trillion dollars in assets under management, participated in the study.

--Written by Hal M. Bundrick

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