Strategic Planning is Front and Center for RIA Growth

Independent advisers are scanning the horizon for new clients to maintain growth in an uncertain economy, Charles Schwab’s benchmarking study found.

Independent registered investment advisers (RIA) reported record levels of assets under management (AUM) and revenues in 2011 driven by new clients that offset the year’s flat market performance, according to the 2012 RIA Benchmarking Study. The average RIA firm increased revenues by 12% and AUM by 3.8%, marking a second consecutive year of record highs for the industry.

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

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

While revenues and assets are up, satisfaction with growth the past three years was down slightly at 67%, from 69% in 2010. The new figures are more consistent with 2009 levels (65%), and may be attributed to longer sales cycles by RIAs. Advisers are staying focused squarely on growth as they look ahead: 55% said their No. 1 initiative in 2012 is expanding their firm, and 84% have an initiative related to growth among their top three priorities.

Maintaining quality of client service (81%), closing new client business (74%), implementing new technologies (63%), and maintaining efficient operations (61%) were cited as the most important keys to growth.

A growing percentage of firms say inadequate strategic planning and execution are blocking growth (28% vs. only 19% in 2007). A number of firms have switched their highest priority initiatives away from marketing and business development and instead are prioritizing strategic planning. 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% of firms have a written strategic plan in place.





Profits grew 14% at the average 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 5% from the previous year and 26% above 2009. Operating income for the average firm was $156,000.

Productivity also grew in 2011, again driven by revenue growth. At the average firm, revenue-per-professional increased 6% from $354,000 to $374,000, while revenue-per-total-staff was up 10%, from $210,000 to $229,000.

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% 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% of firms.

“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, and this has won them continued loyalty of their existing clients and the trust of new ones.”

Schwab’s annual RIA Benchmarking Study, captures trends and best practices of individual firms. This year’s study represents the views of over 1,000 firms, a 25% 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 average participating firm has 186 clients, $212 million in AUM and $1.3 million in annual revenue.