The 2008-2009 market crisis resulted in the average advisory firm surveyed losing 12% in assets and 16% in revenue last year, according to 10th anniversary edition of Rydex|SGI AdvisorBenchmarking report, released Thursday. Meanwhile, another report that looked specifically at SEC-registered investment advisors found that their assets dropped 20%, although their numbers grew.
Meanwhile, top firms saw assets increase 6% last year compared with 2007, the study says. Top firms were defined as those that offer at least four advisory services and that had at least $155 million in assets under management, an AUM growth rate of at least 20% and net profits of $300,000 or more in 2008.
However, most advisory firms in the study got smaller instead of bigger. Coupled with a drop in assets under management (AUM), the average asset management fee also decreased to its lowest level in seven years--from 1.11% in 2007 to .90% in 2008.
To retain and attract clients, advisors decreased their account minimums. The average minimum account size per firm plummeted 41% to $250,000 in 2008 from a 2007 high of $425,000--the lowest account minimum in six years. And bottom lines were hit hard as well, with the median profit margin decreasing to 19% in 2008 from 24% in 2007.
Profitability of larger firms showed more resilience than did that of smaller firms. Firms with less than $50 million in AUM had 16% profit margins compared to a median profit margin of 30% for firms with more than $200 million in assets.
"Even as investment advisors as a whole lost two years of AUM growth during 2008, there are still advisors who continue to grow and prosper," says Maya Ivanova, research manager for AdvisorBenchmarking. "Within this changing environment lies opportunity. The industry is still strong and has great potential for success." For example, in addition to growing their AUM, top advisory firms were also able to retain their client bases, while the average firm struggled to weather a 15% drop in the number of clients served (304 in 2008 vs. 356 on median in 2007). Most advisors (82%) see referrals from existing clients as the key driver for growth in the next five years.
The 2009 annual AdvisorBenchmarking study was conducted through online surveys of 561 RIA firms from February to April 2009.