To understand why 2010 was a “record-breaking year” for independent registered investment advisors (RIAs), take a look at the results of the 2011 RIA Benchmarking Study from Charles Schwab. For most firms participating in the Study, their revenue and assets under management reached levels higher than ever before even though markets have not fully recovered to previously achieved highs.

The largest of its kind covering RIAs, the Study captures trends and best practices in the RIA industry.  This year, 820 RIA firms managing more than $300 billion in combined assets participated.

Schwab hosted a Q&A with Bernie Clark, executive vice president and head of Charles Schwab Advisor Services, the business that supports RIAs, to learn more about the findings.

Q: Based on the study, what really drove 2010’s record growth for RIAs?

RIAs really buckled down during the recession and focused their efforts on what mattered most -- their client relationships and running their businesses efficiently. The study shows that revenue grew by 18% for the median RIA to $1.3 million, and assets under management (AUM) grew by 16% to $212 million. These numbers show that RIAs have gained significant traction in the marketplace even during difficult times.

Q: What results, if any, surprised you?

It’s no surprise that RIAs made sacrifices when the economy contracted, but what stands out is that many went so far as to lower their own bonuses and compensation. Some principals went without any pay at all in order to pay, and keep, their top people. This helped reduce staffing-related expenses at the average RIA firm to 62% of revenue in 2010, down from 65% a year earlier.

Q: What can RIAs learn from the Study results?

Advisors are optimistic and confident about the future and are well positioned for growth. To stand out from the pack, there are three key areas where RIAs should focus:

1. Succession and strategic plans: Given that the average advisor is in their mid-to late 50s, RIA firms should consider what will happen to the business once an advisor retires. Putting a succession plan in place for a departure will communicate confidence not only to employees, but also will underscore longevity and security to clients. The study shows that less than 50% of the RIAs surveyed have a strategic plan in place. RIAs with a plan can build on the firm’s expertise with a long-term strategy in place to achieve goals.

2. Business operations: RIAs should continue to focus on using their staff’s time adequately to better align resources to serve a range of clients effectively. [Link to Client Segmentation blog]

3. Regulatory changes: RIAs need to stay abreast of future regulatory changes. Those who have a solid approach can ease client concerns and spend more time helping their clients. 

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Independent investment advisors are not owned, affiliated with or supervised by Schwab.

Methodology for 2011 RIA Benchmarking Study from Charles Schwab

• Responses were collected during February and March of 2011.
• All information contained in the 2011 RIA Benchmarking Study report is provided for general informational purposes only and is not a recommendation of any business enterprise or investment advisory practice management technique, strategy or practice reported on or described.
• All data is self-reported by study participants and is not verified or validated. Each participating advisory firm submitted only one set of responses.

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