As RIAs look to support firm growth, recruiting staff to increase firms’ skill sets and capacity ranked as the top strategic priority for the first time ever, ahead of acquiring new clients through client referrals.
That’s according to Schwab Advisor Services’ 2022 RIA Benchmarking Study, now in its 16th year, which reflects self-reported data from January through March 2022 of over 1,200 advisory firms representing $1.8 trillion in AUM.
While recruiting new staff ranked as top priority for the first time in the history of the study, acquiring new clients through client and business referrals were not far behind, coming in as the second and third most important priorities. Based on current growth rates and the number of RIAs, the industry will need to hire more than 70,000 new staff over the next five years without accounting for attrition, retirements or new firms, the study notes. Schwab’s data further shows that 80% of firm plan to hire in 2022, and that the median firm hired three staff in 2021, with two of these being for new positions at the firm.
“People sit at the very center of the RIA value proposition and firm leaders are putting talent squarely at the top of the strategic agenda because they realize it is crucial to their success,” stated Lisa Salvi Managing Director of Business Consulting & Education. “Whether it is the ability to continue to serve existing clients well, or to expand their firms, recruiting and retaining the best people is driving firms to be increasingly intentional about how to differentiate themselves not just as advisors, but as employers of choice.”
A key differentiator in the competition for talent is that nearly 40% of firms in the study have a documented employee value proposition (EVP), explaining what a firm offers its employees in return for the skills, capabilities and experiences they bring. In addition, more than two-thirds of all firms reported offering clearly defined career paths and/or career progression opportunities which can improve engagement and performance, the study notes.
Solid Growth
Schwab’s study further reveals that, despite a challenging environment, firms of all sizes expanded on the “learnings and experiences” during the last two years to help drive strong growth in 2021.
AUM increased 19.5% from the prior year, while revenues were up 23.2%. What’s more, last year’s AUM growth rate exceeded the five-year (2017–2021) compound annualized growth rates for all peer groups, Schwab notes. Moreover, the number of clients was up 6.2% for all firms, at the median.
Organic growth played a pivotal role, reaching its highest point in five years as clients and prospects are drawn to firms’ value propositions. Driving organic growth were increases in assets from new clients and assets from existing clients, both of which also reached five-year highs.
Schwab notes that having intentional and documented strategies helped firms achieve strong client acquisition results. For instance, firms with written marketing plans, ideal client personas and client value propositions attracted more new clients than firms that didn’t have all three in place. In addition, firms with written referral plans gained more new clients from those channels than firms without referral plans.
Meanwhile, some RIAs also pursued inorganic strategies to bolster growth. Schwab found that 6% of firms in 2021 acquired new clients via mergers and acquisitions. The median number of clients acquired was 133 and median assets were $100 million.
In addition, 11% of firms acquired new clients by bringing on an advisor with assets. In this case, the median number of clients acquired was 29 and median assets were $35 million. Across the study, nearly half of all firms are seeking inorganic growth opportunities.
Digitization
Firms are also leveraging digitization to create scale and efficiencies, the study further reveals. Improving productivity using process changes is a top 5 strategic priority as firms are looking at ways to capitalize on digital workflows.
More than half of firms increased their use of digital processes and workflows in 2021, ranging from virtual meetings to electronic signatures for custodian and firm-specific forms, and online platforms for clients. As such, the top-performing firms that have a greater adoption of digital workflows spent nearly 20% less time annually per client on operations, leading to increased productivity.
The technology systems selected as having greatest return on investment in 2021 included:
- portfolio management systems;
- client relationship management systems;
- financial planning systems; and
- portals to share information with clients.
