Despite the challenges of the last 10 years, independent financial advisory firms are reporting that they’ve managed to stay on a growth trajectory — thanks in large part to how they treat their clients.
That’s according to Schwab’s 2016 RIA Benchmarking Study, which looked at numerous factors contributing to registered investment advisors’ growth, strength, and resilience.
Client relationships emerged as a vital part of the picture, even as technology and human capital push operational efficiency.
Growth may have slowed a bit over the past year for both assets under management and revenues, but both are still positive, with assets under management rising to $588 million in 2015 from $365 million in 2011, at a median compound annual growth rate (CAGR) of 9.2 percent. Revenues rose at a CAGR of 10.9 percent to $3.6 million in 2015 from $2.3 million in 2011.
Independent advisors have been working hard on those client relationships, which boosted both client retention rates and referral levels. Average client size rose by 22 percent as advisors spent more time reassuring clients and expanding the scope of their relationships. Client retention rates, despite market turbulence, stayed at 97 percent.
And clients are sending their friends and acquaintances to those advisors; in 2015, approximately 75 percent of new clients, at firms with $100 million or more in assets under management, were gained via referrals.
Technology is high on the list of 25 percent of respondents, who said that their top priority is improving productivity with new technology. Technology-driven efficiencies and improvements in operational processes, meanwhile, increased firm profitability in 2015 4 percent from the prior year.
This is just the latest year in a trend, during which profitability has risen 27 percent in the past five years.
In addition to technology, firms are adding people — many with specialized qualifications. At midsize firms with $500 million to $750 million in assets under management, 61 percent plan to add relationship managers or investment professionals this year and 57 percent plan to add support staff.
And across peer groups, firms strategically hire team members with specialized qualifications. The majority, at 83 percent, have at least one certified financial planner on staff, followed by 55 percent with at least one certified financial analyst; 42 percent have at least one certified public accountant, while 23 percent have at least one lawyer on staff.
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