Despite the turmoil in financial services space—or maybe because of it—registered investment advisors are still in great positions to grow if they use good branding and add value services, according to the latest RIA Benchmarking Study from Charles Schwab released Thursday.
According to the 2018 study of 1,261 advisory firms that custody with Schwab, advisors are focusing on client acquisition, marketing and operational excellence.
“Advisory firms are firmly in an upward trajectory and are using their time to add value for their clients,” said Jonathan Beatty, senior vice president of sales and relationship management for Schwab Advisor Services.
Advisors assets under management grew at the median by 16.2 percent during 2017, compared to 9.6 percent the previous year. The five-year compound annual growth rate was 10.9 percent, with the median starting at $358 million in 2013 and growing to $652 million in 2017. At the same time, revenues accelerated from a median of $2.2 million in 2013 to $3.6 million in 2017, the study said.
For the first time, the average assets per client topped $2 million last year.
“Independent advisors have certainly enjoyed buoyant investment returns, but have also grown their businesses organically and strategically, which positions them well for sustainable growth even in the face of market volatility,” Beatty added. “Firms are fueling their organic growth by differentiating and marketing their value propositions, improving the client experience and strategically expanding their service offerings to meet the needs of their ideal clients.”
The firms that reported documenting both their ideal client and the value proposition that the firm offers as part of an overall marketing strategy attract more new clients and more assets from new clients compared with those that do not document these things.
Slightly more than half of the respondents say they have documented who their ideal clients are and the value the firm provides to them. “The firms that do this win 26 percent more new clients and 41 percent more new client assets than those that don’t,” the study said.
The one big challenge facing advisory firms is the competition for new talent, Beatty said. Seventy-three percent of firms say they are planning to hire during 2018 and 41 percent already recruited talent from other RIA firms in 2017.
“In this case disruption is a positive for advisory firms because it can help them grow,” Beatty said. “There are more firms entering the space and firms are growing larger. The number of $1 billion-plus firms is growing. Eventually there will be more nationally known firms because of an increased emphasis on marketing and brand reputation.