The power of independence: RIAs meet the challenges of growth

Submitted by jason.mousseau on October 2, 2017

The power of independence: RIAs meet the challenges of growth

Jonathan Beatty

Senior Vice President, Sales and Relationship Management, Schwab Advisor Services

As investors continue to seek independent advice, RIA firms are growing and evolving. Schwab’s 2016 RIA Benchmarking Study provides insights on the competitive strengths of the model.

Results of the 2016 RIA Benchmarking Study from Charles Schwab delivered a clear message: Registered Independent Advisors (RIAs) are adapting to the challenges that growth and competition bring. Even in the challenging market environment of 2015, RIAs continued to operate their businesses efficiently and profitably, confirming the enduring power of the fiduciary model.

With 1,128 independent advisory firms participating, and 166 firms each managing over $1 billion in assets, ours is the largest study of its kind in the RIA industry. Firms told us about their assets under management, client retention and acquisition results, staffing and compensation, productivity, and profitability.

We learned that RIAs are running their businesses well and adapting to the challenges of growth and competition. As expected, given market conditions, growth metrics declined year over year, but the long-term trends are positive. The median firm realized a 9.2% compound annual growth rate over the last five-year period.

Revenues also grew in 2015, albeit more slowly than over the previous five years. Nevertheless, one-third of firms in the study grossed more than $5 million in revenue in 2015.

"Across the study, firms reported adding between 28 percent and 50 percent more clients over the past five years."

The power of independent advice

High-net-worth investors are driving this growth as they seek independent advice. Across the study, firms reported adding between 28 percent and 50 percent more clients over the past five years. In addition, individual client relationships grew, increasing 22 percent over that same period.

RIAs are growing many times faster than the wirehouse channel. Over the past 10 years, while assets in the RIA channel grew 12 percent annually, assets in the wirehouse channel grew just 3 percent.1

Over the last decade, the number of RIAs with $100 million to $1 billion in AUM increased 67 percent, and the number of firms managing between $1 billion and $5 billion grew 74 percent.2

All of this adds up to a transformation in the financial services industry. We see four reasons why this change is occurring.

  1. The RIA model is sound and compelling to the public and the advisor community.
  2. High-net-worth investors are drawn to the RIA model because it puts clients’ interests ahead of all else, and that is proving to be a winning proposition.
  3. RIAs are running their businesses well and evolving as they grow.
  4. More seasoned financial advisors are transitioning to independence, either by establishing new firms or joining existing firms.

Paths to growth

It's important to note that there are many ways to grow, and every firm grows in its own way. Some focus solely on organic growth; others, while also growing organically, compound their growth by merging with another firm or bringing on advisors with their own books of business.

"Firms of all sizes are capable of achieving strong results."

It's also important to remember that firms of all sizes are capable of achieving strong results. To be sure, the majority of firms that participate in the study show growth within a "healthy band." Yet some firms consistently outperform over longer periods of time.

To give you an example of what's possible—and I don't mean to imply that it’s typical—one firm that started with a modest $362 million in AUM in 2011 nearly quintupled in just five years to $1.629 billion—becoming a very large firm in a very short time. This firm had an AUM compound annual growth rate of 35.1%.

If you'd like to see examples of how eight firms have managed strong growth, each taking its own distinct path, download the most recent Market Knowledge Tool® white paper, "Growth and transformation: How top-performing RIAs are creating enduring value

Beyond the numbers

For insights into the data from our annual RIA Benchmarking Study, we talked with principals at several highly successful firms of different sizes—all of whom have participated regularly in the study. We wanted to find out what they are doing that helps them stand out. We learned that successful firms are steeped in a culture of growth, with strategies and tactics that are intertwined to support growth. As one advisor told us, "In business, you either grow or you shrink."

"Successful firms consider growth essential to survival."

Successful firms consider growth essential to survival. As they grow, they take pains to maintain a high level of client service. Great service is the lifeblood of referrals, and successful firms make sure everyone at the firm not only feels dedicated to its clients but also can talk effectively about how the firm helps clients—thus expanding the firm’s referral network.

They also ensure that their firms are built to last. They employ remarkable discipline in running their businesses, adopting a "continuous improvement" mindset and methodically implementing processes that streamline operations to build scale and facilitate growth. As they add services to differentiate themselves from the competition, they are automating processes and leveraging technology so they can focus their talent on value-added services.

Successful firms pay attention to a key intangible: the firm's culture. They hire carefully and deliberately seek employees who share the firm's values and commitment to clients. And they make their firm a great place to work, with a strategic compensation plan designed to attract, nurture, and retain those valuable employees. In turn, the employees will contribute to the firm's growth by attracting more clients and serving them exceptionally well.

Finally, they have a succession plan so that clients can have confidence the firm will be there after the founder retires. In a nutshell, these firms put clients' interests first.

Looking ahead

We expect the long-term trends revealed in the RIA Benchmarking Study to persist. As high-net-worth investors continue to seek out financial providers who exemplify the fiduciary model, RIAs will be managing many more billions of dollars in the coming years. Growth will remain a top strategic priority for most firms, and they will take steps to prepare for growth.

"Because we expect competition for talent will intensify as firms grow, one of the greatest challenges on the horizon is the need to attract and retain the right people."

Because we expect competition for talent will intensify as firms grow, one of the greatest challenges on the horizon is the need to attract and retain the right people. And, as the current generation of owners retire, firm succession will become ever more important. Many of the successful firms we interviewed offer employee ownership—both equity in the firm and a voice in its governance—as part of their compensation plan. These firms say employee ownership helps motivate staff, build loyalty, and create a career path that encourages employees to stay and contribute to the firm.

A note about pricing, a perennial concern for advisors: The study indicates that while RIAs continue to enjoy significant pricing power, even showing increases, on average, across the spectrum, investors can pay significantly different amounts for the services of RIA firms. Should investors become more aware of the wide spread in pricing for what they may see as similar services, there may be pressure on pricing. While RIAs will need to monitor pricing competition carefully on an ongoing basis, we are confident they will continue to adapt and evolve their businesses, as they have been doing so effectively all along.

The long-term growth of RIAs is a testament not only to the power and appeal of the independent advice model but also to the value proposition and commitment that advisors deliver to their clients every day.

What the RIA Benchmarking Study can do for you
Participating in Schwab's annual RIA Benchmarking Study can give you the insights you need to chart a course for your firm. Each participating firm receives a customized Peer Report. And those firms who also participate in the compensation portion of the study receive an in-depth Compensation Report along with access to our online Compensation Benchmarking Tool. These personalized reports provide side-by-side comparison of your firm's data against that of other firms with similar AUM and business model. This information can help you define where you are, where you're headed, and what success getting there looks like.

To participate in the 2017 RIA Benchmarking Study from Charles Schwab or to learn more about it, speak with your relationship manager or visit