A new year brings new opportunities, and in the registered investment advisor space, opportunities abound.
Lisa Salvi, managing director of advisor services, business consulting and education at Schwab Advisor Services, spends much of her time studying the RIA industry via the firm’s annual benchmarking report and consulting with advisors in the field. That gives her a strong grasp of what will drive those opportunities in 2025.
Organic growth, Salvi says, will be the top metric that RIAs focus on in the new year, and she has some thoughts on what firms can do to supercharge their growth. Talent will continue to be a top priority for firms, and she encourages an emphasis on firms’ employee value proposition to attract and retain top talent. Thirdly, the industry will focus on the wealthstack, especially exploring ways to capture efficiencies via artificial intelligence. The days of reposting a job when someone leaves the firm are gone, she argues.
WealthManagement.com recently chatted with Salvi, who provided her outlook—and opportunities—for the RIA industry.
The following has been edited for style, length and clarity.
WealthManagement.com: What were some of the key findings from Schwab’s RIA benchmarking report this year?
Lisa Salvi: We fielded our benchmarking study from January to March. We had 1,300 firms participate, representing $2 trillion in AUM. When you look at the year-end 2023 results, AUM increased 17.9% at the median, assets from new clients were at a five-year high, and assets from existing clients were at their second-highest point in five years.
Retention for RIAs remains remarkably strong, at 97% for the last decade. So, those are very strong metrics that advisors experienced the last year, and that led to some very strong organic growth as well, which is, I think, the No. 1 metric for us to track because that helps advisory firms understand how well their strategy is working in the marketplace and strips out some of the noise that the equity and markets can lead into those results.
For firms with $250 million and larger, organic growth was about 5%. For the top-performing firms, which are a cohort of the top 20% of firms in our study, it was higher. That’s measured by testing the 15 metrics that matter the most for long-term performance. So top-performing firms had an organic growth rate of 12.2% in that same period, which is a very good organic growth rate for any industry. And they also see two times the revenue growth as other firms within any five-year period.
WM: What are some of the characteristics that separate those high-growth firms from the others?
LS: One is having a strategic business plan, a written strategic business plan. Probably my favorite finding from our study is that firms that have a documented ideal client persona, client value proposition and marketing plan tend to get at least 40% more new clients. But this year in the study, it was 67% more new client assets.
Once you put those strategies into place and you start viewing your business through the eyes of your ideal client, for example, you just get this year-over-year return on your growth.
WM: What’s your outlook for growth for RIA firms looking into 2025?
LS: We are going to see a lot of emphasis in our industry around that organic growth number. I’m already seeing it happen when I’m talking with advisors, especially C-suite advisors. Even when you look at inorganic growth and how prevalent that has been in our industry, the firms that are looking to acquire are really looking at that organic growth metric very closely right now. So that’s the No. 1 metric to understand and to track going into 2025.
The second one is just talent, talent, talent. Talent is the differentiator of the future. Firms are more focused on talent, probably, than I’ve seen. It just continues to rise in their list of strategic priorities, which we saw this year. Two of the top five strategic priorities are related to talent. So not only recruiting talent, but making sure that you’re taking really good care of the talent who’s with your firm and developing them for the future.
One of the metrics I like to look at is if a firm has an employee value proposition in place. Since we started measuring that in 2022 and working with firms on developing their employee value proposition, we’ve seen it go up seven points.
The third one is just your tech and wealthstack optimization, and there’s really an emphasis that a lot of firms have on starting to figure out how to capture AI efficiencies as well. That will be one of the dominating forces next year. It’s not just about posting that same job opening when you have an employee leave your firm. I think those days are over.
It’s going to be about really thinking through the talent and what you need in this new environment of not just tech and wealthstack, but also AI. Most firms that we’re seeing who have started in this space are using it a little bit for marketing copy. About 13% of firms are doing that, according to our last study. I expect that to go up next year, but also to do things like capture meeting notes and integrate with CRM and save them time. Some firms estimate up to 15 minutes per prep for client meetings already. So I think we’re just at the very beginning of starting to see some of those efficiencies come into play.
WM: When you’re talking about folks not reposting jobs, are you saying that AI will take over some of the jobs that folks are doing in firms?
LS: You might not need the exact same list of skills that were on there before. In some cases, yes, I think AI can help capture some of the repetitive tasks that we do already. But I think it’s questioning what skill set I need for this role in the future as my firm grows.
WM: M&A continues to accelerate in this space. What’s your outlook for valuations in 2025?
LS: Firms who want to get a high valuation should absolutely look at their organic growth rate and their talent. Firms that are looking to acquire are looking for really good [second- and third-generation] talent within the firms. I think you’re going to see that with interest rates potentially continuing to come down, that can lead to higher valuations.
Some of the noise surrounding the election has dissipated or will dissipate soon, but the best things firms can do if they’re interested in valuation is get your house in order, really understand their own organic growth, their own talent, and look at that.
That also happens to leave a lot of doors open for firms in the future. So maybe they decide they want to be independent, or maybe they decide they want to take on a minority capital partner. I think we’ll continue to see more private equity and capital partner relationships coming into our part of the industry.
WM: What might M&A activity look like next year?
LS: When I look at the numbers, it’s been about 40% of firms have pursued inorganic strategies over the past five years. And then when we ask about the future, about 50% of firms say they’re seeking an inorganic growth opportunity in the future. I think that’s what we’re going to see going into 2025. The top reasons why they’re attempting inorganic growth are to increase growth, acquire talent and increase scale. That will continue to be true in the future.
WM: How do you think that the Trump administration will impact the wealth management industry?
LS: We do a lot of work in D.C., regardless of the administration, to advocate for awareness of the RIA business model. We just want to make sure regulation really takes into account what an RIA looks like.
They’re not typically a huge, hundreds of thousands-employee type of business. So when a new rule is passed, we want it to make sense and be implementable for the clients we work with. I would just expect us to continue to do a lot of that advocacy work and link arms with advisors who are willing to go to Capitol Hill and talk about their businesses with the people who set the rules and regulate.
WM: What are some of the big initiatives Schwab Advisor Services will work on in 2025?
LS: We’re going to continue to work hand in hand with advisors on our consulting engagements and our talent programs. We’ll continue to help firms with cybersecurity, where we’ve spent a tremendous amount of time that will never go away. We will be launching some new capabilities with our benchmarking study for participating firms.
And as we continue to help firms on M&A, we’re about to launch, any minute now, an assessment that’s helping firms quantify responses from a cultural perspective of what they’re looking for because that ends up being the most important part of a deal. We’re really trying to help them understand what’s important to their culture and to the acquiring or the acquired firm’s culture and how to integrate effectively.
WM: What new capabilities are you launching for participants in the benchmarking study?
LS: What we launched this year was the first set of digital capability pages, so a digital dashboard for some of those results. That’s been a vision of ours for years. We want firms to be able to compare themselves to more comparison groups with key metrics.
So you could look at not only how you’re performing in your peer group, but you could start to get an idea of, let’s say, you’re growing really fast, you’re a top-performing firm, what do you need to start thinking about to prepare for that next level of growth in terms of things like board structure, productivity, role types, all of that kind of stuff? Next year, we’ll be launching an even bigger set of those pages and capabilities.
WM: A lot of the larger RIAs rely on the referral programs of the big custodians, including Schwab’s. What’s your outlook for the future of those referral programs?
LS: Where I tend to focus more is not on any specific referral program. We know referrals are still the lifeblood of our industry, but growth comes from more sources than ever before.
Firms that have documented client referral programs and centers of influence programs have a much higher growth rate. So it doesn’t matter if you’re in a formal program as much as what your strategy is. We like to see firms that not only have metrics they track relative to their strategies but also behavior.
For example, we took a look at COI referrals again this year. What we tend to see in our industry is people give up too soon when they’re trying to build that new COI relationship. They might start to identify someone who would be a great person to work with, and they start to have conversations, but then they don’t get a referral after 10 months and move on to the next one. And it generally takes a year.
Firms with documented referral plans for centers of influence get 4.2 times more new clients. It’s really remarkable when you take the time to put a really effective strategy in place, and you understand the best practices for that strategy and how well it can work and turbocharge those growth rates.
WM: Overall, what changes do you expect to see in the custodial landscape going forward?
LS: Advisors are looking for partners that are not only great with the service and tech pieces but also some of the value-added pieces. That’s where I really focused my time: how do we help firms plan and prepare for the future, define their vision for the future, and take the steps to get there?
Firms are more professionally run than they ever have been before, and the pace of change in our industry is accelerating. So you just see growth, you see new ideas, you see all these exciting things happening. People want a custodial partner who can help them think those things through and advocate for the future of the industry.
WM: Schwab just recently released its compensation report. What were some of the key findings of that study, and what’s your outlook for compensation?
LS: We’ve looked at the last five years, and there’s been 17% growth in compensation at the median for our industry. In 2023, it went up 5.6% of the median across all roles in the study. We measure the top 27 roles, so that is a significant increase.
When we look at a comparison point, compensation went up 4.2% for wages and salaries for non-union private industry workers over the same period. So, this remains a very compelling profession where individuals across all roles are well compensated.
The other thing I would call out is the stats around employee value proposition. And 60% of top-performing firms have that in place. About 51% of firms across our industry have that in place. That still is a significant opportunity. It’s going up every year. Firms are really taking it seriously. That helps you stand out in the talent marketplace. It’s not just about the pure compensation and benefits; those things should be competitive. And there’s a ton of data in our study that helps firms set what a competitive package can look like across almost every factor you can think about.
But that’s one piece of the story. There are other things that employees are looking for: the culture of the firm, feeling like you understand the values and the mission of the firm you work with, mentorship programs and equity ownership.
Those are some of the less numerical things that can absolutely help you create a strong and compelling talent brand in the marketplace. We want it part of the interview process, and I really want to see a careers page on their website that talks about some of these things because that is one of your most effective ways to differentiate yourself in a pretty crowded market.
