Registered investment advisors saw business rebound in 2023, reporting assets under management up nearly 18% during the year to a median of $542 million, according to Schwab’s latest RIA Benchmarking Study. That compares to a 7.1% loss in AUM in 2022 when the median AUM was $455 million.
Schwab’s study found that the median organic growth rate was at 5% in 2023, which excludes market performance and inorganic growth. Organic growth measures the change in a firm’s assets from new, existing and lost clients, the custodian said.
Schwab’s annual survey of 1,304 advisory firms representing $2 trillion in AUM also found RIA revenue was up 6.3% in 2023 to a median of $3.64 million, while the number of clients increased 4.3% to a median of 350.
Assets from existing clients, excluding investment performance, hit a five-year high, said Lisa Salvi, managing director, advisor services, business consulting and education at Schwab Advisor Services. Client retention has remained steady at 97% for the last decade.
The organic growth rates for top-performing firms were even higher, with those firms seeing 12% growth last year. Schwab evaluates all respondent firms on 15 metrics, including five-year client CAGR, client attrition, operating margin and time spent on client service, among others. Then, the top 20% are pulled out as top performers.
These top firms are more likely to have documented an “ideal client persona,” Salvi said, meaning the type of client they’re building the firm to serve. These firms also have a client value proposition and can articulate why people should choose their firm. They are also more likely to have a marketing plan. These firms had 67% more growth from new clients and new client assets.
“Once you have those three strategies in place, that’s a really powerful turbocharger for growth,” Salvi said.
Top performers were also more likely to collect client feedback in the form of surveys, one-on-one interviews and interviews with referring clients. Such feedback helps advisors improve the client experience and figure out what services they should provide. Firms with $250 million or more in assets that collected feedback during interviews gained 26% more assets from existing clients in 2023.
“They’re really actionable about getting that feedback and using it to continually enhance their client experience,” Salvi said.
The top two strategic priorities for RIAs in 2024 were around growth—acquiring new clients through client and business referrals.
But talent was also a top priority, with recruiting staff to increase capacity at third and developing staff skills and capabilities rounding out the top five. That latter priority was ranked 10th just a few years ago, Salvi said.
More firms are establishing career paths, with 76% of RIAs reporting having that. Schwab has also been working with firms to develop their employee value proposition or the articulation of what an employee could expect if they work there.
“It’s going to include things like comp and benefits—those things should be competitive,” Salvi said. “If you have a career path or mentorship program, student loan forgiveness, pet insurance—whatever those different things are, put them in there. They will really connect to those elements that help them feel like they’re growing in their career.”
Growing firms also document key strategies for client and centers of influence referrals, Salvi said. These referrals, after all, account for 67% of growth for all firms surveyed. RIAs get three times more new clients and over four times more client assets when they have those strategies documented. The median firm is working with about seven centers of influence.
Salvi said it can take a year for RIAs to actually get referrals from those centers of influence.
“Keeping those relationships strong and focusing on them for the long-term before you’re expecting a referral—that’s really important,” she said.
As far as client relationships, Salvi said it’s telling that client retention has remained steady at 97% for the past decade.
“Any new client relationship they acquire has a high net present value in terms of what that long-term value for that new relationship will be,” she said. “It’s not just the organic growth; it’s the quality of that organic growth that this industry experiences.”