It’s a great time to own a registered investment advisor (RIA) firm.
Many RIAs achieved record profitability in the last year. For all firms in a recent survey, profitability, as measured by standardized operating margin, has risen 36 percent over the past five years.
Those are some of the findings of Charles Schwab’s just released 2015 benchmarking study, an annual RIA survey in its ninth year. Schwab quizzed some 1,000 RIA firms, which collectively manage some $750 billion, and found business is booming.
“Nearly half of the firms (42 percent) participating in the study have doubled their revenue since 2009 and assets under management (AUM) has increased by 75 percent for half of the firms in the study,” according to the study. This represents a compound annual growth rate (CAGR) of 12.1 percent, Schwab said.
Why are RIAs enjoying fat margins and increasing client assets?
Schwab officials said it is the result of a number of factors: Client acquisition and organic growth, but also through achieving high client and employee retention rates. Those are factors that Schwab called the “attributes of business health and value.”
A Schwab official said that growth is also the result of the experience of the average RIA firm and the success of an unbiased model that comes from RIA professionals holding to a fiduciary standard.
“More than half of the RIA firms in the study are now embarking on their third decade in business and the data shows they are doing so from a position of competitive strength,” said Jonathan Beatty, senior vice president, sales and relationship management, Schwab Advisor Services.
Schwab has some 7,000 advisors, with some $1.1 trillion in assets. He said the study shows how RIAs are doing versus others in the business and spotlights trends in the advisory business. Schwab also uses the survey, he said, as a way of seeing what products and services are popular.
RIAs are learning best practices from each other, he added. Beatty also argued that “the independent model is clearly winning today among high-net worth investors.” Another factor driving growth, he said, was adding expertise to the average RIA, which today is much more likely to have CPAs and attorneys on staff.