Assets under management at RIA firms grew 17.9% last year, a far cry from the 7.1% decrease in 2022, according to Charles Schwab’s latest benchmarking survey.

And while 40% of firms in the survey have pursued some kind of inorganic growth strategy in the last five years, assets coming from new clients have reached a new high as firms develop more structured organic growth plans, the survey said.

The “2024 RIA Benchmarking Study” highlights three key areas for advisory firms—their organic growth strategies, the recruitment and retention of their talent and their use of digital tools to streamline operations. These things look at first blush look like previous years’ highlights, but on further examination they reveal twists that are specific to the here and now, said Lisa Salvi, Schwab’s managing director of business consulting and education

“It's growth, certainly. Talent, but not just hiring. More firms are emphasizing developing the capabilities and skill sets of the staff they have, and that’s a new one for us,” she said. “And there’s digital [strategies]. But it’s really client experience that’s the focus, and digital is just one of the drivers of the client experience.”

Firms with less than $250 million in AUM experienced 7.9% organic growth and 19.4% AUM growth, the survey found. (The survey defined organic growth as a firm’s asset growth excluding market performance.)

Firms with more than $250 million in AUM saw 4.9% organic growth and 17.4% AUM growth, while top-performing firms saw 12.2% organic growth and 23.9% AUM growth. The survey defined top-performing firms as those that ranked in the top 20% when 15 performance metrics were applied.

This is the 18th year Schwab has conducted its annual survey, which polled 1,304 advisory firms representing $2 trillion in AUM. The polling took place throughout the first quarter of 2024, and participating firms had at least $25 million in AUM. 

How Does Your Client Garden Grow?
Schwab identified five strategies that led to more organic growth at advisory firms: 1) when they used referral plans; 2) when they collected feedback from clients; 3) when they created and used ideal client personas, client value propositions and marketing plans; 4) when they used digital marketing strategies; and 5) when they tracked results. (Ideal client personas are developed profiles of what their ideal clients look like ... such as what does their family looks like, what kind of work they do, where their kids go to school, where do they like to vacation, etc.)

Since referrals remained the No. 1 driver of organic growth, firms that had a clear and measurable referral program saw 67% of new clients and new client assets come through this channel, the survey said.

Firms that collected feedback during client interviews attracted 26% more client assets from existing clients than those that didn’t, and firms that articulated ideal client personas, client value propositions and marketing plans drummed up 67% more new clients and new client assets than firms that didn’t.

In addition, when digital marketing was used, whether the form was webinars, podcasts or video, most firms reported leads coming directly from that activity, and firms that tracked results saw a 50% lead conversion rate in 2023.

“The 50% is pretty good because not everyone is the right fit for the firm. But I think the important thing is the practice of tracking, because that's how you know, ‘Is digital marketing working for me? Are people responding to this? Are we closing the ones we want to close?’” Salvi said. “You don't want to close every single one because you don’t want to get too far away from your ideal client.”

Another way to look at that 50% close rate is that when it’s combined with the industry’s continued decade-long 97% retention rate, the result is an “amazing statistic that we don't always celebrate because it's consistently there.”

“But the net present value of each of those new relationships you close is really significant. So firms aren’t just closing 50% of the time, but they're closing 50% of the time and these tend to become long-term, very happy, very engaged clients,” she said. “That's really one of the reasons why we also are seeing such an amazing growth rate versus the anomaly of 2022.”

Nurturing Talent
As firms grow, it’s still a challenge to attract and keep talent to service those new clients, but the staffing environment is better now than it’s been in the past.

“We've come off the incredibly tight labor market that we were all dealing with a couple of years ago,” Salvi said. “Roughly 75% of firms hired last year. At the median firm, they hired two new roles. That's a pretty significant change when you're not a huge firm to begin with.”

Salvi said the industry still sees the need to hire, but staffing in 2023 was not just about hiring, it was also about developing employee skill sets. Part of that is because firms have increasingly adopted employee value propositions, she said.

“They’re really making sure they're articulating, ‘If you join my firm, here's the things that we're going to invest in you and give you to grow, and here's what we expect back in return,’” she said. “And that's been a really positive thing in the industry.”

In addition, the percentage of firms that have demonstrated what their career path is has risen to 76%, Salvi said.

When it comes to creating a client experience, digital tools and workflows are key, allowing firms to spend 25% less time per client on operations annually and 10% more time on client service. But equally important is the way a firm approaches client segmentation, the survey found.

“What we like to see when we work with firms on client segmentation is that they really understand the cost to serve per segment and what kind of client experience they're delivering each segment. Most people go straight to AUM segmentation, but that’s not necessarily the best approach,” Salvi said. “It can be a like group of clients.”

One obvious grouping is next-generation clients, she said, and firms doing well with this group are developing formal strategies for how they engage, including meeting with the children of current clients, bringing in an estate attorney to facilitate substantive discussions among family members, or developing a unique offering just for next-gen clients (often involving the younger advisors at the firm.)

But Salvi continued that there are plenty of other ways to segment clients. The important thing is to be clear about what your firm is trying to accomplish and have the effort scaled to the results.

“Segmentation in general works across the board. You just need to really sit down and define what each segment of clients is going to receive and make sure you're not accidentally grossly overserving one segment at the expense of another segment,” Salvi said. “I like to see firms revisit that about every five years because you can get some drift as you grow so rapidly, and you just need to kind of go back and make sure you've got the right stuff aligned with the right opportunity.”