Last year marked another year of continued long-term growth for RIA firms, with new client acquisitions leading the way, according to a new study.
Schwab’s newly released 2019 RIA Benchmarking Study, which focuses exclusively on independent advisors with responses from more than 1,300 firms representing $1.1 trillion in AUM, shows that in 2018, new clients drove more than five times the new assets at $26.3 billion, compared with net assets from existing clients at $5 billion.
Additionally, the report notes that the fastest-growing firms saw nearly twice the growth in assets from new clients versus other firms, registering at 6.8% compared to 3.6% for all other firms. Of that 6.8% in growth, 2.3% came from marketing, 1.8% from center-of-influence (COI) referrals and 2.7% from existing client referrals.
Growth and Priorities
Net organic growth apparently was a key factor in sustaining business performance, especially with volatile markets, Schwab notes. Net organic growth is defined as the change in assets from existing clients, new clients and assets lost to client attrition before investment performance is taken into account, and it excludes the growth from acquisitions, divestitures and advisors joining or leaving a firm with assets.
For firms with more than $250 million in AUM, their net organic growth equaled 4.1%, while their AUM growth actually declined by 0.8%. Among the fastest-growing firms, their AUM growth was nearly 26% in 2017, but that level dropped to 6.5% in 2018. By comparison, net organic growth for these firms registered at 10.5% in 2018 and 14.7% in 2017.
Firms are also pursing inorganic means to bolster growth, according to the study. In 2018, 13% of firms acquired clients by bringing on an advisor with a book of business, 4% of firms acquired new clients via M&A in 2018, and over the past five years 18% of firms engaged in acquisitions.
In addition to acquiring new clients, firms’ top business priorities include leveraging technology to improve productivity and enhancing strategic planning and execution. Firms are actively seeking talent, with 71% bringing on staff last year. In addition, 42% of firms reported that they recruited from other RIAs.
The study also unveils findings on equity sharing and financing options at RIA firms. It notes that 71% of firms share equity with nonfounders. Retaining key talent was cited as the primary reason for sharing equity.
Options for equity financing have expanded recently, with firms using banks, internal financing, outside investors and more, according to the study. Among firms that offer equity to employees, most often employees finance the equity purchases.
Firms are also increasingly taking advantage of efficiencies in CRM systems to help serve client more consistently. Since 2014, there has been a 24% increase (from 29% to 36%) in firms using three or more data sources integrated with CRM. In addition, the study shows a 19% increase (from 31% to 37%) since 2014 by firms using standardized workflows with CRM for more than 50% of tasks.
Schwab’s study further notes that advisors are taking key steps to enhance their cybersecurity program to protect their clients and firms, including:
- employee training (92%);
- cybersecurity insurance (65%);
- consulting (60%); and
- client education (48%).
