New Clients Drive Steady Growth for Independent Advisors in Face of Uncertain Economic Environment, Says 2012 RIA Benchmarking Study From Charles Schwab

Looking ahead, advisors widen focus over the longer-term and make strategic planning a top initiative as they seek continued growth

Tuesday, July 17, 2012 8:00 am PDT

Dateline:

SAN FRANCISCO

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NYSE:
SCHW
"To take advantage of long term business opportunities and overcome hurdles to growth, advisors can develop a strategic plan that allows them to maximize their resources by prioritizing efforts across client service, operations and business development"

SAN FRANCISCO--(BUSINESS WIRE)--Independent registered investment advisors (RIA) reported record levels of assets under management (AUM) and revenues in 2011 - driven by the addition of new clients, and offsetting the year’s flat market performance - according to the 2012 RIA Benchmarking Study from Charles Schwab. The median RIA firm increased revenues by 12 percent and AUM by 3.8 percent, marking a second consecutive year of record highs for the industry.

New client growth came in at 4.7 percent at the median – in terms of new clients net of client departures – flat from last year but up from 3.5 percent in 2009. When looking solely at new clients in the door, firms grew by 8.2 percent, while the 20 percent of firms bringing in the most clients added new clients by 14.7 percent or more.

“RIAs successfully grew their businesses to record levels in 2011 despite strong economic headwinds that the industry continues to face,” said Jon Beatty, senior vice president, sales and relationship management, Schwab Advisor Services. “RIAs have stayed true to their core mission – doing what is best for their clients – and this has won them continued loyalty of their existing clients and the trust of new ones.”

Alongside the growing numbers of new clients joining their firms, RIAs also marked a second consecutive year of rising client retention rates, maintaining more than 97 percent of their existing clients in 2011.

Sights Set On Growth, Advisors Put Strategic Planning On the Front Burner

While revenues and assets are up, satisfaction with growth the past three years was down slightly at 67 percent, versus 69 percent in 2010. The new figures are more consistent with 2009 levels of 65 percent, and may be attributed to longer sales cycles by RIAs. Advisors are staying focused squarely on growth as they look ahead: 55 percent said their number one initiative in 2012 is directed towards growing their firm and 84 percent have a growth-related initiative among their top three priorities.

In terms of the top enablers of growth, firms cited maintaining quality of client service (81%), closing new client business (74%), implementing new technologies (63%), and maintaining efficient operations (61%).

In contrast, a growing percentage of firms are citing strategic planning and execution as a barrier to growth (28% versus only 19% in 2007). In fact, a number of firms in the study have switched their highest priority initiatives away from marketing and business development, and instead are prioritizing strategic planning and execution. Overall, one in seven had strategic planning or succession planning as their top special initiative in 2011, where only one in ten did in 2010. Still, only 42 percent of firms have a written strategic plan in place.

“To take advantage of long term business opportunities and overcome hurdles to growth, advisors can develop a strategic plan that allows them to maximize their resources by prioritizing efforts across client service, operations and business development,” continued Beatty. “A written strategic plan acts as a roadmap that helps advisors stay on track, make critical business decisions, and build long-term value for the firms. In fact, Best Managed Firms lead the way with nearly twice as many having a written strategic plan in place.”

Profits and Productivity Improve

Profits grew 14 percent at the median firm in 2011, mostly driven by revenue growth. Principal income (the total base, bonus and firm profits per principal), another measure of profits, was also up: the median income was $341,000, up five percent from the previous year and 26 percent above 2009. Additionally, operating income for the median firm was $156,000.

Productivity, in terms of revenue-per-professional and per-total-staff, also grew in 2011, again driven by revenue growth. At the median firm, revenue-per-professional increased six percent from $354,000 to $374,000, while revenue-per-total-staff was up ten percent, from $210,000 to $229,000.

While AUM and revenues saw record levels at the majority of firms, revenue and assets per client have not seen the same record highs. Revenue per client, at $8,000, was up nine percent versus $7,300 the year prior.

The cost to bring on new clients has also risen. Productivity of business development – measured as time cost per new $1 million in AUM – declined, as the cost increased by nearly 20 percent in 2011. It appears that longer sales cycles are contributing to that increase. But despite these increased costs, closing new client business is nonetheless a top enabler of growth according to 74 percent of firms.

Benchmarking in Action

Schwab’s RIA Benchmarking Study can be used as a foundational component of strategic planning for RIA firms that custody with Schwab. Advisory firms that participate in the study receive a complimentary Peer Benchmarking Report customized to their firm’s size and business model.

“We spend a lot of time in our business managing relationships and managing money, and we don’t spend as much time as we should analyzing how we do what we do, and measuring ourselves against the rest of the industry,” said advisor Suanne Ramar at Nelson Capital in a video interview about benchmarking. “When we saw the study, and where we fit in a number of different metrics, it drew our focus to areas that need additional attention.”

Using the customized Peer Benchmarking Reports, Schwab Advisor Services’ business consultants and relationship managers consult with firms one-on-one to help interpret the results, diagnose potential problem areas and discuss possible solutions. The reports are an important business planning tool and provide personalized, detailed and actionable insights for firms on topics such as advisor asset and revenue growth, sources of new clients, products and pricing, staffing and productivity, strategic planning, technology and operations, and firm economics.

According to advisor Justin Stets at Carlson Capital Management, “Individual owners have their heads down and are working in the business. Schwab helped us work on the business. We are able to work with our Schwab relationship manager to look at the survey results and apply them to growing the business, reducing unwanted expenses, and generating additional or new forms of revenue.”

Charles Schwab’s RIA Benchmarking Study

Schwab’s annual RIA Benchmarking Study, the largest study of its kind focusing exclusively on RIAs, captures trends and best practices in the RIA industry based on the experiences of individual firms. This year’s study represents the views of over 1,000 firms, a 25 percent increase from a year ago. The firms participating manage more than $425 billion in combined assets, with 105 of those firms managing $1 billion or more. The median participating firm has 186 clients, $212 million in AUM and $1.3 million in annual revenue.

Schwab’s Business Consulting Services for advisors

Schwab’s Business Consulting Services is a comprehensive practice management platform that draws on more than two decades of experience working with advisors. Through one-on-one support, online resources, and consultative events, Schwab provides independent investment advisors with comprehensive practice management solutions including insights, tools and resources to help them drive growth, improve scalability and efficiency, and focus on client service. Schwab’s Business Consulting Services, provided to advisors who custody with Schwab, is comprised of six comprehensive offerings that cover key areas of running an independent advisory firm: business strategy and planning, marketing and business development, human capital, transition planning, technology and operations, and compliance resources. Schwab’s relationship managers and business and technology consultants work closely with advisors to identify areas of need and leverage solutions to support the advisor business.

About Charles Schwab

The Charles Schwab Corporation (NYSE:SCHW) is a leading provider of financial services, with more than 300 offices and 8.7 million active brokerage accounts, 1.52 million corporate retirement plan participants, 822,000 banking accounts, and $1.80 trillion in client assets as of June 30, 2012. The company was ranked "Highest in Investor Satisfaction With Self-Directed Services" in the 2012 US Self-Directed Investor Satisfaction StudySM from J.D Power and Associates. Through its operating subsidiaries, the company 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; referrals to independent fee-based investment advisors; and custodial, operational and trading support for independent, fee-based investment advisors through its Advisor Services division. Its banking subsidiary, Charles Schwab Bank (member FDIC and an Equal Housing Lender), provides trust and custody services, banking and mortgage services and products. More information is available at www.schwab.com and www.aboutschwab.com. Investment products offered by Charles Schwab & Co., Inc. are not insured by the FDIC, are not deposits or obligations of Charles Schwab Bank, and are subject to investment risk, including the possible loss of principal invested.

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The RIA Benchmarking Study from Charles Schwab comprises self-reported data from advisory firms that custody their assets with Charles Schwab. The Best-Managed Firms are the top 20 percent in productivity, profitability, and revenue growth, calculated after removing those with less than $1 million in revenue.

All information contained in the Study is provided for general informational purposes only. The Peer Benchmarking Report is not a recommendation of any business enterprise or investment advisory practice management technique, strategy or practice reported on or described. All data is self-reported by Study participants and is not verified or validated. Each participating advisory firm submitted only one set of responses. The 2012 RIA Benchmarking Study was fielded February and March, 2012. The Study contains self-reported data from 1,025 firms spanning 2008 – 2011.

Independent registered investment advisors are not owned, affiliated with or supervised by Schwab.

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