Independent advisors expanded rapidly in 2017—not just by growing AUM, but also by adding clients and staff, according to TD Ameritrade.
RIA median client growth, a key indicator of business expansion, hit a record high of 7.8 percent in 2017, according to a survey of 321 advisors released on Thursday by TD Ameritrade.
The median assets per client for independent advisors rose by 6.8 percent in 2017 to nearly $1 million, helping firms increase their AUM by 20 percent on average, compared with 13 percent in 2016. RIA revenues increased by an average of 16 percent in 2017, twice their rate of growth during 2016, according to the study.
In response, RIAs are increasing hiring and productivity. The average RIA had six full-time staff members in 2017, compared to an average of five full-timers in 2016. Productivity, measured as revenue per team member, increased by 12 percent after having declined during 2016. According to TD Ameritrade, firms also spent more on office space, technology and business development in 2017.
The increase in overhead expenses, combined with rising wages, eclipsed the growth of revenue and AUM, leading to compressed margins for independent advisors. The median operating profit margin dropped from 24 percent in 2016 to 20 percent in 2017.
AUM is deteriorating as a source of revenue for RIAs, according to the survey. In 2017 an average RIA made 71 basis points for every dollar they managed, down from a peak of 78 basis points per dollar of AUM in 2015. Nevertheless, 98 percent of RIA clients are charged exclusively on AUM.
Jersey City, N.J.-based TD Ameritrade sponsored a survey of 321 independent RIAs in February and March. All respondents had been in business for at least one year, generated a minimum of $150,000 in annual gross revenue and served individuals or households as primary clients.