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What Sets Top-Performing RIA Firms Apart?

Industry Trends and Research

New research shows that large, top-performing RIA firms are outperforming their peers by investing in people, technology and acquisitions as part of a long-term strategic plan. 

According to the data gathered for TD Ameritrade Institutional’s annual FA Insight Study of Advisory Firms, the top-tier firms were found to be, among other things, more active acquirers. The analysis shows that 80% of large, standout advisory firms have initiated an acquisition in the past five years, compared with 47% of other large firms. Standout firms that did a deal averaged two transactions during this period. 

The analysis focused on firms that generally manage more than $1 billion in client assets and generate at least $4 million a year in revenue to determine whether there are correlated best practices and characteristics that help them perform at a higher level.   

Large standouts are also adding human capital at a much higher rate to sustain future growth. The analysis found that these firms increased full-time employees by 12% between 2016 and 2018 – more than three times the 3.5% headcount increase reported at other, lower-performing large firms. 

These firms also generated higher productivity and profitability, producing a 75.5% gross profit margin, versus 63% among other firms. TD Ameritrade explains that gross margin reflects the efficiency of a firm’s revenue generator, including client mix, product mix and service mix.

Top-performers are more efficient converting effort into revenue and generate more revenue per revenue-producing employee, according to the analysis. One key driver of outperformance is that large standouts are more likely to tie employee compensation to how individuals help the firm meet its strategic goals – 82% at standouts versus 55% at other firms. 

The analysis further shows that large standouts collect more revenue on every dollar managed, 84 basis points compared with 74 basis points among other large firms. In addition, they’re more likely to collect a minimum fee – 50% of standouts compared with 44% among the rest.

When it comes to technology, the top performers scrutinized their technology spending and focus on generating high returns on their investment. Moreover, compared to other firms, they are more likely to adopt tools that can increase efficiency and deliver a better client experience, including:

  • Financial planning software: 93% versus 71%
  • Digital document management: 64% versus 57%
  • Online client portal: 71% versus 52%

“The data reinforce what we’ve long believed to be best practices: well-managed firms are investing in themselves, their people and platforms to build a foundation for a larger, more scalable and successful future,” notes Vanessa Oligino, Director of Business Performance Solutions at TD Ameritrade Institutional.