Treasure Trove Of RIA Benchmarks Released This Morning By Schwab; RIAs More Productive In 2010 And Profit Margins Improved

RIAs, the survey says, ended 2010 with revenue and assets rebounding to reach all-time highs, with the median firm growing sales by 18%. 

The 2011 RIA Benchmarking Study from Charles Schwab Advisor Services offers a slew of useful benchmarks. This year’s study represents views of 820 firms collectively managing more than $300 billion in combined assets, with 75 of those firms managing $1 billion or more. The median participating firm has 186 clients, $212 million in assets under management (AUM) and $1.3 million in annual revenue.

At the end of 2007, the year of a peak and period before the financial crisis wrecked financial markets, median sales totaled $176 million compared with a year-end 2010 AUM level of $212 million.

Median standardized operating income recovered to 18.3%, up from 14.9% in 2009. "This, combined with strong revenue gains, produced a surge in profits of 45% at the average firm," the Schwab reports. "Organic growth enabled most RIA firms to surpass 2007 asset levels despite markets that haven’t completely recovered. The typical firm delivered net positive asset flows of 4.3% annually during the last three years."


Schwab 2011 RIA Benchmarking Study Slides 7 5 11

The median firm had $1.30 million in revenue in 2010 versus $1.22 million in 2008, the previous best.

At $7,300, revenue per client for the median firm, was up from 2009 ($6,900), but down 13% from its high in 2007. More clients represented fewer revenue dollars. “Many advisors found themselves working harder for the same money,” the Schwab study reports.

The biggest obstacle to growth: devoting sufficient staff time for business development is cited by 52% of the 820 firms as the biggest growth barrier.


On the positive side, advisors are more productive. Schwab says the key drivers of the increased efficiency are outsourcing and adopting technology systems to boost productivity.


This dovetails nicely with Schwab’s push for adoption of its outsourced portfolio accounting solution. Schwab purchased Etelligent, a performance reporting outsourcing solution in January 2008 and has been offering that platform to RIAs.


“Historically maintained in-house, back-office operational functions such as data management, performance reporting and invoicing are increasingly being outsourced, with a more than 40 % increase in outsourcing since only one year ago,” the Schwab study reports. “Outsourcing may be especially helpful for small- to mid-size firms to gain scale quickly in areas where internal expertise could be difficult or expensive to develop. Most likely to be outsourced are information technology (IT) (75%), payroll (67%), compliance (38%, up from 27% last year) and benefits (32%).”


The survey asked advisors whether they used any of eight applications common to many RIAs. On average, a firm used 5.4 out of eight apps, compared with 4.2 just three years ago. The most commonly used apps: portfolio management systems (96%), customer relationship management (CRM) (84%), email archiving (83%) and document management (70%).


RIAs slowed client attrition by 25%, retaining 97% of their clients during 2010. But that sounds better than it actually is. Following two terrible years in the stock market and the mortgage crisis, you’d expect client attrition to slow.


As usual, client referrals continue to be the top initiative for advisors, with 54% of RIAs citing referrals as a top-three strategic initiative for 2011. Yet the Schwab study notes that 42% of RIAs do not track client referrals as a success metric and 60% do not systematically track client satisfaction.


As reported for years in other surveys of RIAs, most investment advisors fail to plan: 58% do not write a formal strategic plan.


Succession planning continues to be ignored by many RIAs, with  40% reportiung they do not have a succession plan in place. And for those that do, it tends to be larger firms.


This Website Is For Financial Professionals Only