For the second consecutive year, RIAs are enjoying record assets under management and revenue, according to Charles Schwab's 2012 RIA Benchmarking Study. Revenues at the median firm in our study of more than 1,000 advisories grew by 12% in 2011 to $1.38 million, while median assets under management were up 4% to end 2011 at $201 million. Those levels are extraordinary when you consider firms reported a recent low in revenues of $1 million in 2009 and a median $134 million in assets under management at year-end 2008. Increased revenues and assets have given RIAs more resources to explore their future direction-to find out whom they want to serve and figure out how to best structure their businesses to grow rapidly and profitably.

The growth and evolution of the registered investment advisory field has been an amazing thing to watch and participate in. The first few waves of RIAs blazed a trail with little support, resources or even a clear map of where they were headed. But these pioneers saw that independence would allow them to serve clients without restrictions or conflicts and created the industry from the ground up.

What's most exciting to me is that we're still in the early stages of our industry's development. RIAs today have both an amazing opportunity, and an important responsibility, to think about who they want to be in the future and where they want to take their businesses to achieve even higher levels of trust, credibility, respect and success.

The RIA Marketplace
In planning the future of their firms, it's important that advisors look not just at their own internal business practices but also at the changes and trends occurring in the larger RIA universe. The marketplace continues to expand-and as it does, advisors are presented with a range of new opportunities about how to structure their businesses and serve clients. Consider these important dynamics we're seeing in the industry today:

More advisors are transitioning to independence. This is no surprise. More brokers, seeing the success of peers striking out on their own, are looking to join them. In a Schwab survey of advisors at major financial firms, more than 76% expect a continued increase in the number of advisors moving to the RIA model, and 51% say they find the idea of being an RIA appealing.1 And a virtuous circle is developing: As more RIAs emerge, there will be more resources and options for them-which in turn encourages more brokers to go independent.

More capital is flowing into the RIA space. The RIA model allows advisors to create long-term value in their firms, unlike their peers in the wirehouse. But access to capital is necessary, and as the RIA space has grown, it has caught the attention-and money-of venture capital firms, large consolidators and even other RIAs looking to grow through acquisition.

This flow of capital is breaking down the industry's barriers to entry, making it easier for advisors to get up and running, and giving new advisors more choices for building and structuring their practices. It's also helping RIAs with succession plans, allowing principals nearing retirement to give junior advisors ownership stakes in their companies.
There are more third-party providers. As the ranks of independents have grown, so have the number of product and service providers supporting them. Firms such as turnkey asset management providers (TAMPs), for instance, offer key functions like reporting, research and product packaging under one umbrella.

Advisors need this kind of operational support. Many of them feel client service and operations obstacles stand in the way of growth (about 47% of firms named these things as barriers in the benchmarking study, up slightly from last year). One in five firms said their No. 1 initiative for 2012 was related to "client service and operations," and 65% had such an initiative in their top three initiatives. Additionally, 23% of firms had "investing in new technology to support productivity" among their top three initiatives.

The firms in our study are highly engaged and productive but they want to become highly efficient as well. To that end, they are focusing on work flow within their offices so that everyone is working efficiently and eliminating errors, and augmenting these smarter work flows with technology such as integrated CRM systems. Third-party vendors can help them do this.

More firms are consolidating through mergers, acquisitions and partnerships. When asked about approaches for succession planning, 31% of the firms in the benchmarking study said they were interested in merging, while 29% reported an interest in selling, up from 25% last year.2 What's more, in the first quarter of this year, we saw a 25% increase in the number of mergers and acquisitions in the RIA space and a fourfold increase in the amount of assets acquired.3 This activity came largely from RIAs buying other RIAs (30% to 40% of the total deals during the past three quarters) as well as from large firms acquiring groups of advisors to create consortiums. In the latter case, some of the firms are very loosely affiliated with each other, while others become integrated under a single banner or brand.

The consolidation trend suggests that one day a few large firms will dominate the industry at the expense of everybody else. But we don't see that day coming. The sheer amount of resources enables any advisor of any size to go anywhere the clients are, without being limited to just one neighborhood, ZIP code or state. It's common for firms headquartered on one coast to open an office on the other coast to serve their diverse client mix. We may even see more advisors go beyond domestic multi-coast models to implement multi-country approaches in order to accommodate the lifestyles of their clients. Ultimately, physical size and branding will play less of a role in a firm's success than being where the clients are and giving them what they need.

Managing The Evolving Client Relationship
In the midst of new changes, choices and challenges, one fact about our business has remained steadfast. Relationships with clients are, and always will be, the most important part of the RIA model. Client attrition continued to decline to 2.8% from 3.1% in 2010 from a high of 4.1% in 2009. This means that advisors retained more than 97 clients out of 100 in 2011.

Still, even as the barriers to entry into the RIA space are falling as advisors gain easier access to more sophisticated tools, the bar for client service is being raised.

In a study of high-net-worth investors, more than one-third (37%) said their desire for investment advice has increased during the past four years.4 When asked about important advisor attributes, they pointed to knowledge (71%), advice (59%), investment performance (49%), trust (48%) and service (47%). Clearly, investors are seeking more from advisors than just performance.

We're seeing important niches emerge within the overall high-net-worth demographic-including families trying to preserve wealth through generations; young affluent investors; and affluent women. These groups will become increasingly important to RIAs' growth and bring their own unique needs, expectations and behaviors to the advisor-client relationship. RIAs will need to carefully examine their approach and determine how to structure their practices to serve these investors and instill in new clients the same confidence that current ones have.

Additionally, advisors will need to consider different ways of communicating than they currently do as they reach out to the children of existing clients and younger wealthy professionals. These people will require a more dynamic and diverse approach. Younger investors may not demand as many face-to-face interactions with their advisors or office visits as older investors?but they certainly will expect their advisors to make themselves available on demand through mobile devices like iPads or even through social media. Understanding differences in how client segments prefer to communicate with their advisors and adapting accordingly will be increasingly important as advisors shape the RIA model of the future.

Advisors today must ask themselves what more they can (and need to) offer, and how they can best bring that support and value to clients-whether it is by outsourcing, partnering with other providers or merging with another firm. It may be that today's RIA firms will focus less on financial planning and wealth management and instead offer broader services as multifamily offices. This means they will be working with other professionals and using third-party providers as well as their own in-house capabilities. Firms that allow their service models to evolve around the changing needs of their clients will be the ones who grow and win.

Change Is Inevitable
One thing is certain. Change in the RIA industry is inevitable. Success will come down to how well advisors navigate the change and structure their firms to take advantage of new opportunities. It all begins with advisors defining their firms and creating a vision for themselves and their futures. Careful strategic planning based on advisors goals and the needs of their clients-both now and down the road-is critical. Knowing "who you are" will determine the right next steps for you and where you belong in this large and expanding ecosystem.
Advisors recognize that the true end goal isn't to beat each other but to make the pie bigger. As we move forward and evolve, it's easy to see our $2.7 trillion industry double in size-and keep right on going.

BERNIE CLARK is executive vice president and head of Schwab Advisor Services, a leading provider of custodial, operational and trading support for nearly 7,000 investment advisory firms.

Information provided is for general informational purposes only. Some of the statements in this presentation may be forward looking and contain certain risks and uncertainties.  The views expressed are those of the speaker and are subject to change based on market and other various conditions. Schwab Advisor Services serves independent investment advisors and includes the custody, trading and support services of Charles Schwab & Co., Inc. Member SIPC. Independent investment advisors are not owned, affiliated with or supervised by Schwab. (0712-3763) All stats in this article are based upon the 2012 RIA Benchmarking Study from  Charles Schwab unless otherwise noted.
1. Source: Advisors Turning Independent Survey, February 2011.
2. Source: 2012 RIA Benchmarking Study from Charles Schwab
3. Source: Schwab Reports on M&A Industry Transactions, April 2012
4. Source: Schwab Independent Advisor Outlook Study, April 2012