Organic growth and investment performance are fueling an upward trajectory for independent advisors, as they focus on client acquisition, marketing and operational excellence, according to a new study.
Results from Charles Schwab’s 2018 RIA Benchmarking Study show that AUM grew 16.2% in 2017 at the median, up from 9.6% in 2016. The five-year compound annual growth rate (CAGR) for AUM was 10.9%, jumping from $358 million in 2013 to $652 million in 2017. In addition, revenue rose from $2.2 million in 2013 to $3.6 million in 2017, for a five-year CAGR of 9.8%, the study notes.
Schwab’s study captured insights in the RIA industry based on responses from individual firms. It examined asset and revenue growth, sources of new clients, products and pricing, staffing, compensation, marketing, technology and financial performance.
According to the authors, asset growth from new clients in 2017 was found to be more than twice that from existing clients for a majority of firms — $48 million versus $24 million at the median. In addition, for the first time in the study’s history, average assets per client are more than $2 million for firms with over $250 million in AUM.
Meanwhile, net organic growth contributed 5.6% to firms’ asset growth in 2017 and 13.6% for fastest-growing firms. Defined as the top 20% of firms with $250 million or more in AUM based on a five-year net organic CAGR, the top priorities for these firms remain acquiring clients, enhancing strategic planning, improving productivity with new technology and recruiting staff.
The study also revealed that:
- the five-year net organic CAGR for these fastest-growing firms is almost four times that of all other firms: 15.4% compared with 3.9% at the median; and
- these firms won nearly double the number of new clients in 2017: 36 at the median versus 19 for all other firms.
In addition, for these fastest-growing firms, more new client assets come from a combination of business partner referrals and other marketing (60%) versus existing client referrals (40%).
As such, 46% of firms in 2017 created a documented marketing plan, while 49% had a marketing budget. And nearly one in three firms document their referral goals from existing clients and from business partners or other centers of influence. Firms also employed a range of digital marketing channels to help their firms grow: email newsletters (62%), social media (58%) and video (22%).
“Firms are fueling their organic growth by differentiating and marketing their value propositions, improving the client experience, and strategically expanding their service offerings to meet the needs of their ideal clients,” explains Jonathan Beatty, senior vice president, sales and relationship management with Schwab Advisor Services.
Identifying an ideal client persona and client value proposition are among the keys to success. Firms that documented these strategies won 26% more new clients and 41% more new client assets than those that do not, according to the study.
In addition, a growing number of firms have added services that address clients’ unique needs. For example, the study notes that charitable planning services were offered at 80% of firms in 2017, up from 63% in 2013. Family education services were offered by 72% of firms in 2017, compared with 56 percent in 2013.
Moreover, nearly three quarters (73%) of firms are planning to hire in the next 12 months and 41% recruited from other RIA firms in 2017. Eighty percent of firms plan to add relationship managers or investment professionals, and 65% plan to hire administrative staff.
“With the success of this industry comes more competition, and the firms who thrive are those who effectively amplify their brands, invest in their people, focus on best practices and deploy the right technology to drive operational excellence and an optimal client experience,” Beatty notes.
Fielded from Jan. 2018 to March 2018, the study contains self-reported data from 1,261 firms that custody their assets with Schwab Advisor Services and represent more than $1 trillion in AUM.