Independent Advisors Continue on Growth Trajectory While Building Firms to Weather Headwinds

2018 RIA Benchmarking Study from Charles Schwab indicates continued upward trajectory as advisors focus on client acquisition, marketing, and operational excellence

STUDY HIGHLIGHTS:

  • Adding new clients has outsize impact on assets under management (AUM) growth: Asset growth from new clients is more than twice that from existing clients for a majority of firms. 1
  • Average assets per client surpasses $2 million mark: For first time in the Study’s history, average assets per client are more than $2 million for firms with over $250 million in AUM.
  • Net organic asset growth helps drive overall AUM growth: Net organic growth contributed 5.6 percent to firms’ asset growth in 2017 and 13.6 percent for fastest-growing firms. 2
  • Marketing strategies lead to more new clients and assets: Firms that document both their ideal client persona and client value proposition as part of an overall marketing strategy attract more new clients and assets from new clients compared with those who do not.
  • Competition for talent heats up: Nearly three quarters (73%) of firms are planning to hire in the next 12 months, and 41 percent recruited from other RIA firms in 2017.

Thursday, July 12, 2018 4:00 am PDT

Dateline:

SAN FRANCISCO

Public Company Information:

NYSE:
SCHW
"The most successful firms are focusing their ability to appeal to and meet the needs of their ideal clients"

SAN FRANCISCO--(BUSINESS WIRE)--The independent advisory industry remains on a growth trajectory, according to results from the 2018 RIA Benchmarking Study from Charles Schwab, the largest study of its kind in the industry. The data from Schwab’s latest Study indicates AUM grew 16.2 percent in 2017 at the median versus 9.6 percent in 2016, and the five-year compound annual growth rate (CAGR) for AUM was 10.9 percent, from $358 million in 2013 to $652 million in 2017. Meanwhile, revenue accelerated from $2.2 million in 2013 to $3.6 million in 2017, a five-year CAGR of 9.8 percent.

“Independent advisors have certainly enjoyed buoyant investment returns but have also grown their businesses organically and strategically, which positions them well for sustainable growth even in the face of market volatility,” said Jonathan Beatty, senior vice president, sales and relationship management, Schwab Advisor Services. “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.”

The Benchmarking Study findings reinforce Schwab Advisor Services’ Guiding Principles for Advisory Firm Success, a foundational framework that helps independent advisors address the complexities of growing their firms and creating enduring business enterprises:

     
Schwab Advisor Services

Guiding Principles for Advisory Firm Success

  2018 RIA Benchmarking Study – Data Highlights

(Results for firms with $250 million or more in AUM unless otherwise noted)

Effective planning and execution is a leading indicator of success  
  • Enhancing strategic planning and execution is among the top five strategic priorities, following only new client acquisition and improving productivity with technology.
Value is defined through your clients’ eyes  
  • More than half of firms (51%) have documented both an ideal client persona and a client value proposition.
    • The firms that do this win 26 percent more new clients and 41 percent more new client assets than those that do not.
  • A growing number of firms have added services that address clients’ unique needs.
    • Charitable planning services were offered at 80 percent of firms in 2017, up from 63 percent of firms in 2013.
    • Family education services were offered by 72 percent of firms in 2017, compared with 56 percent in 2013.
    • Several other services that became more widely adopted in 2017 include: tax planning (76%), lifestyle management (33%), bank deposits (32%), life insurance products (31%), and annuities (31%).
Operational excellence creates greater capacity for clients  
  • Standardized operating margins ranged from 22.9 to 29.2 percent in 2017 among the peer groups.
  • Operating discipline provides increased capability and scalability, enabling advisors to spend more time with clients.

 

   

AUM

 

Clients per
professional
(median)

 

AUM per
professional
(median)

Over $2.5 billion

 

45

 

$163 M

$500M - $750M

 

53

 

$99 M

   

$100M - $250M

 

55

 

$55 M

Your reputation is your brand  
  • In 2017, 46 percent of firms created a documented marketing plan and 49 percent had a marketing budget.
  • Approximately one in three firms document their referral goals from existing clients and from business partners, or centers of influence.
  • In addition to referrals, which are foundational to organic growth, firms leveraged a range of digital marketing channels to help their firms grow: email newsletters (62%), social media (58%), and video (22%).
  • The median firm increased its client base by 4.8 percent in 2017, compared with 3.6% in 2016.
People are your most important asset  
  • Nearly three quarters (73%) of firms are planning to hire in the next 12 months, and 41 percent recruited from other RIA firms in 2017.
  • Eighty percent of firms plan to add relationship managers or investment professionals, while 65 percent plan to hire administrative staff.
  • The largest firms are hiring most aggressively: 69 percent of firms with over $2.5 billion in assets plan to hire relationship managers in 2018, while 84 percent plan to add support staff.
 

Attributes of the fastest-growing firms

For more than a decade, the Benchmarking Study has examined attributes of the fastest-growing firms: those firms that are the top 20 percent of firms with $250 million or more in AUM based on a five-year net organic CAGR.

The fastest-growing firms in the 2018 Study exhibited several key attributes3:

  • Five-year net organic growth CAGR is almost four times that of all other firms: 15.4 percent compared with 3.9 percent at the median for all other firms.
  • Fastest-growing firms won close to double the number of new clients in 2017: 36 at the median versus 19 for all other firms.
  • These firms also saw twice the assets from new clients compared with all other firms: $48 million versus $24 million at the median.
  • For fastest-growing firms, more new client assets come from a combination of business partner referrals and other marketing (60%) versus existing client referrals (40%).

“The most successful firms are focusing their ability to appeal to and meet the needs of their ideal clients,” said Beatty, “and they deliver their message to clients and prospects through strategic communication channels. 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.”

About Schwab’s RIA Benchmarking Study

Schwab designed the RIA Benchmarking Study to capture insights in the RIA industry based on study responses from individual firms. The 2018 study provides information on such topics as asset and revenue growth, sources of new clients, products and pricing, staffing, compensation, marketing, technology, and financial performance. Fielded from January to March 2018, the study contains self-reported data from 1,261 firms that custody their assets with Schwab Advisor Services and represent slightly over a trillion dollars in AUM, making this the leading study in the RIA industry. This self-reported information was not independently verified.

Since the inception of the study in 2006, more than 3,400 firms have participated, with many repeat participants. Participant firms represent various sizes and business models. They are categorized into 12 peer groups—seven wealth manager groups and five money manager groups—by AUM size. Unless otherwise noted, study results are for all firms with $250 million or more in AUM, representing the vast majority of total assets managed by this year’s participants.

The fastest-growing firms are the top 20 percent of firms with $250 million or more in AUM as determined by net organic growth (five-year net organic compound annual growth rate). Net organic growth is 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.

To view more results of the 2018 RIA Benchmarking Study and the latest Independent Pulse, visit www.aboutschwab.com/press/research. Also see additional Benchmarking results at advisorservices.schwab.com/benchmarkingresults and learn more about the Guiding Principles at advisorservices.schwab.com/managing-your-business/business-consult.

Graphics and data will also be shared from @Schwab4RIAs on Twitter.

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 and LinkedIn.

Disclosures

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.

Schwab Advisor Services™ serves independent investment advisors and includes the custody, trading, and support of Schwab.

Independent investment advisors and Schwab are independent of each other and are not affiliated with, sponsored by, endorsed by, or supervised by each other. For informational purposes only.

0718-8M3B

1 Data represents median results for firms with $250 million or more in AUM, unless otherwise noted.

2 Fastest-growing firms are the top 20 percent of firms with $250 million or more in AUM based on five-year net organic compound annual growth rate. Net organic growth is the change in assets from existing clients, new clients, and assets lost to client attrition.

3 Fastest-growing firms are the top 20% of firms with $250 million or more in AUM based on five-year net organic CAGR. All other firms represent the remaining 80% of firms.

Contact:

Schwab Corporate Public Relations
Meredith Richard, 212-403-9255
Meredith.Richard@schwab.com
or
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Mayrav Weiss, 718-801-8864
sas@neibartgroup.com

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