Improved productivity, operations and financial results are among the benefits of scale seen in the study. Firms with at least $1 billion in AUM enjoy 51 percent greater revenue-per-client and 71 percent greater AUM-per-professional than firms managing $250 to $500 million in assets. Clients with assets of more than $5 million accounted for half of the 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. Larger firms also reported improved margins. The standardized operating income margin at firms with $1 billion or more in AUM was 25 percent greater than that of firms managing $250 million to $500 million in assets.“The power of growth is evident in the results of our annual study,” said Beatty, “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.” Cultivating Relationships, Creating Referrals The RIAs in the 2013 study reveal the importance of offering outstanding client experiences. Based on study results, the path toward growth and increased profitability requires the ability to attract the right kinds of clients and to serve them well. RIAs that excel at relationship cultivation benefit more from referrals from existing clients and centers of influence (COI). The fastest-growing firms in all AUM segments generated more new business from referrals than their peers, approximately three times more net assets flows from new client acquisition in 2012. Moreover, across all peer groups, these fastest-growing firms acquired referrals from COIs at a higher rate than all other firms do from COIs and existing clients combined.
Although client referrals and COI are a primary channel for RIA growth, according to the study, some firms are also looking to non-organic means to achieve growth – specifically, by acquiring another firm. Approximately 25 percent of RIAs in the $100 million to $1 billion AUM segment indicated they are actively seeking to acquire another firm. Among firms managing $1 billion or more in AUM, 34 percent are actively looking to acquire another firm. Among the fastest growing firms, 1 in 5 reported plans to acquire another RIA while 1 in 3 of all other firms is looking to acquire.“With the compelling benefits of increased scale, it’s not surprising that RIAs are eager to move to the next level with their business,” said Beatty. “Whether through organic or non-organic means, the path to growth is a strategic decision that firms are weighing at the individual level. The study results can help them make these decisions armed with better information based on real data from their peer groups.” An Eye on the Next Generation Looking to the future, firms are increasingly eyeing the next generation of advisors and identifying a plan for succession. Here, too, the strategy is further along at larger firms. Among RIAs with at least $1 billion in AUM, 64 percent reported having established a formal succession plan. Sixty percent of firms with $250 million to $1 billion in AUM have an established plan, while at firms managing $100 million to $250 million in assets, 41 percent have a plan. Finally, technology integration appears to be reaching a critical mass, with just 38 percent of study firms citing it as a challenge to their firms, versus 59 percent saying it presented a challenge in the previous year. Additionally, digital strategies in 2013 are viewed as a means to communicate and enhance the client experience. From an operational standpoint, 86 percent of firms now invest or plan to invest in the next 12 to 18 months in workflow technology; 73 percent now invest or plan to invest in mobile technologies; and 67 percent invest now or plan to invest in cloud-based technologies.
“The future of the RIA model depends greatly on the next generation,” says Beatty. “Although firms are increasingly thinking about succession, we see a lot of work still to do toward establishing implementable plans. Connecting with the next generation of advisors and investors is a critical challenge that all RIAs must address in order to grow and remain competitive in the years to come.”Schwab’s Business Consulting Services for Advisors Schwab’s Business Consulting Services is a comprehensive practice management platform that draws on more than two decades of experience working with advisors. Through one-on-one support, online resources, and consultative events, Schwab provides independent investment advisors with comprehensive practice management solutions including insights, tools and resources to help them drive growth, improve scalability and efficiency, and focus on client service. Schwab’s Business Consulting Services, provided to advisors who custody with Schwab, comprise six comprehensive offerings that cover key areas of running an independent advisory firm: business strategy and planning, marketing and business development, human capital, transition planning, technology and operations, and compliance resources. Schwab’s relationship managers and business and technology consultants work closely with advisors to identify areas of need and leverage solutions to support the advisor business. About Charles Schwab At Charles Schwab we believe in the power of investing to help individuals create a better tomorrow. We have a history of challenging the status quo in our industry, innovating in ways that benefit investors and the advisors and employers who serve them, and championing our clients’ goals with passion and integrity. More information is available at www.aboutschwab.com. Follow us on Twitter, Facebook, YouTube, LinkedIn and our Schwab Talk blog. Through its operating subsidiaries, The Charles Schwab Corporation (NYSE: SCHW) provides a full range of securities brokerage, banking, money management and financial advisory services to individual investors and independent investment advisors. Its broker-dealer subsidiary, Charles Schwab & Co., Inc. (member SIPC, www.sipc.org), and affiliates offer a complete range of investment services and products including an extensive selection of mutual funds; financial planning and investment advice; retirement plan and equity compensation plan services; compliance and trade monitoring solutions; referrals to independent fee-based investment advisors; and custodial, operational and trading support for independent, fee-based investment advisors through Schwab Advisor Services. Its banking subsidiary, Charles Schwab Bank (member FDIC and an Equal Housing Lender), provides banking and lending services and products. More information is available at www.schwab.com and www.aboutschwab.com. Brokerage Products: Not FDIC Insured • No Bank Guarantee • May Lose Value (0713-4738)
i About the RIA Benchmarking StudySchwab designed this study to capture insights in the RIA industry, based on survey responses from individual firms. The 2013 study provides information on topics such as asset and revenue growth, sources of new clients, products and pricing, staffing, marketing, technology, and financial performance. Since the inception of the study in 2006, more than 2,500 firms have participated, with many repeat participants. A total of 1,025 advisory firms representing nearly half a trillion dollars in AUM that custody their assets with Schwab participated this year, making this the leading study in the RIA industry. The RIA Benchmarking Study comprises self-reported data from advisory firms that custody their assets with Schwab. Participant firms represent various sizes and business models. They are categorized into 12 peer groups—6 wealth manager groups and 6 money manager groups, by AUM size. The study is part of Schwab's Business Consulting Services, a practice management offering for RIAs. Grounded in the best practices of leading independent advisory firms, Business Consulting Services provides insight, guidance, tools, and resources to help RIAs strategically manage and grow their firm. Unless otherwise noted, study results shown are for firms with $250 million or more in AUM, representing the vast majority of total assets managed by this year’s participants. Independent investment advisors are not owned, affiliated with or supervised by Schwab. ii All firms in the study that manage $250 million or more in assets were examined as a group with regards to their AUM compound annual growth rate (CAGR) over the 3-year period from 2010 through 2012. Firms with a historical 3-year AUM CAGR of 15 percent or greater—representing both market performance and organic growth—are projected to double in size by the end of 2014 if they continue on the same growth trajectory they experienced from 2010 through 2012. Past performance is no guarantee of future results. From 2010 through 2012, the 3-year asset-allocated CAGR was 6.3 percent at the median. iii The fastest-growing firms are the top 20 percent of firms as determined by 2012 net organic growth. This cohort includes 90 firms out of 451, all of which have $250 million or more in AUM. Net organic growth—the change in assets from existing clients, new clients, and assets lost to client attrition—is the area over which RIAs have most control. Thus, it is the growth metric used for the analysis.