Despite the aging market cycle and some volatility, it is still a good time to be an RIA, according to Charles Schwab’s 2019 RIA Benchmarking Study.
RIAs of all sizes are growing, mostly by bringing on new clients, the study, released Thursday, said. The data provided by more than 1,300 firms representing a little more than $1 trillion in assets can be used by advisors to compare how they rank against their peers and show them areas where improvement can be made, said Lisa Salvi, vice president of Schwab Advisor Services, during an interview with Financial Advisor magazine.
For all firms, new clients bring in five times as much in assets, compared with assets added by existing clients, which could explain why one of the top priorities for RIAs is acquiring new clients. Other top priorities include leveraging technology to improve productivity and cyber-security and enhancing strategic planning and execution, the study said.
RIAs are not only seeking new clients, they are also looking for new talent, and a lot of that talent is being poached from other firms, the study said. Seventy-one percent hired new staff in 2018 with 42% recruiting from other RIAs. In order to retain the talent, 71% of firms share equity with nonfounders.
The study shows “the independent advisory space as a whole is doing incredibly well,” Salvi said. “The model continues to resonate with high-net-worth investors and serves as a barometer for the health of the financial industry.”
The key to building a successful business is knowing who the ideal client is.
High-touch client experiences are delivered through great relationship management, Schwab said. Firms that are clear on who their ideal client is can use that as a lens to make business decisions, such as whether to offer new services and what those services should be, as well as what the marketing strategy should be. The study, which included approximately one fifth of the RIA industry, revealed 71 percent of firms added staff last year and 76% plan to hire this year. That brings the median number of new hires per firm to three and the median size of firms to 12 advisors.
“I ask advisors what kind of story they are trying to tell through their website and what kind of clients they are trying to attract,” Salvi said. For instance, “one firm I worked with wanted to work with the ‘sandwich’ generation so the firm needed to create content and experiences that appeal to those clients.”
The top 20% of firms measured by growth grew two times faster than the remaining 80%, the study said. Most of that growth comes from adding new clients, rather than adding assets from existing clients because firms already have a large wallet share from existing clients.
Last year 13% of firms acquired clients by bringing on an advisor with an existing book of business and 4% of firms acquired new clients through mergers and acquisitions. Over the last five years, 18 percent of firms were involved in mergers and acquisitions.