The RIA industry had a good year in 2006: median assets under management, revenues and net profits hit record levels last year, according to Rydex Advisor Benchmarking’s annual survey. Clearly they’re doing a lot of things right. But at the same time, profit margins slipped as higher expenses offset those increases—and that’s because advisors are giving themselves substantial pay increases, the survey says.

Median assets under management rose to $142 million from $124 million the previous year, the survey shows. And not all of that growth was attributable to market gains: median asset growth totaled 15 percent for the year, versus 12 percent for the S&P 500. The biggest sources of new assets? Rollovers from 401(k)s and the acquisition of clients from competitors, at 39 percent and 30 percent respectively, according to respondents.

A greater emphasis on wealthier clients also helped: Last year, on average, high-net-worth individuals (over $1 million in investable assets) accounted for 41 percent of an RIA’s assets, up from 39 percent the previous year, while ultra-high-net-worth individuals (over $5 million in investable assets) accounted for 15 percent, up from 9 percent the previous year.

RIA firms are doing a better job of managing their practices too. For one thing, they’re delegating more responsibility to junior staff—something this group has long been reluctant to do. In 2006, some 29 percent of advisors said they felt comfortable delegating meetings to staff based on asset levels, up from 9 percent the previous year. They’re also offering employees more career growth opportunities: About one quarter are sponsoring employees for the series 7, close to one third are offering tuition reimbursement and sponsoring continuing education for employees, and close to half send their employees to seminars.

More RIAs are also now offering a full suite of services to clients, with an increasing number (between half and three-quarters) providing investment management, insurance planning, estate planning and charitable giving planning. As a result of these changes to service offerings, advisors are also increasingly charging planning and consulting fees and reducing their reliance on asset-based fees: On average, flat fees accounted for 31 percent of revenues in 2006, up from 24 percent in 2005, while AUM fees accounted for 68 percent, down from 75 percent. “The change in pricing structure is largely due to the shift by advisors toward more highly customized solutions, such as retirement and financial planning and their need for adequate compensation for all services,” says Rydex in its report.

Of course, the RIA industry has its challenges too. Median profit margins slipped to 28 percent from 29 percent as median expenses shot up 20 percent to $1.1 million. That’s primarily because principals took home more dosh: Compensation to principals rose to 45 percent of all expenses from 40 percent the previous year. Every other area of expense slipped or stayed the same as a percentage of the total, except for office expenses, which edged up to 6 percent from 5 percent.

Plus, there are a few things RIAs see as bigger threats to their business this year than last: lack of an exit strategy and competition from online financial services firms as well as CPAs. But the top threat? The need to work on and in the business simultaneously was cited as problem by 64 percent of advisors surveyed. But that’s one that probably won’t go away: it’s precisely the challenge of running your own business.