Advisors Cite Referrals and Effective Staffing As Significant Opportunities
SAN FRANCISCO, Oct. 4 /PRNewswire-FirstCall/ -- According to a recent
study by Schwab Institutional, participating independent registered
investment advisor (RIA) firms' assets under management grew a median of 20
percent in 2006 and revenues increased at a median rate of 16 percent
during the same period. Now in its second year, the Schwab Institutional
RIA Benchmarking: Growth Trends Study (study) analyzes growth trends, firm
financial performance, sources of new business, organizational issues, and
productivity. Additionally, the study found that from 2003 to 2006,
participating firms grew their client base by eight percent annually with
the average client size increasing 42 percent to $1.04 million.
"Independent advisors are experiencing phenomenal growth and the future
remains very bright, because asset and revenue growth are far exceeding
client growth, which should lead to increased firm profitability," said
David Welling, Schwab Institutional vice president of marketing and advisor
business management. "But with growth comes challenges, including the
continuous search for new employees and the need to find more
organizational scalability. Our research clearly indicates that the more
successful firms maintain a disciplined approach to growth and plan ahead."
Schwab Institutional's RIA Benchmarking: Growth Trends Study, the
largest study of its kind in the industry, provides each participating
advisor with a customized Peer Benchmarking Report that enables the firm to
measure its growth, market and business development efforts, and
organizational structure against peer firms who are similar in size and
business model, as well as the RIA industry as a whole.
It's All About Referrals
According to the study, the largest source of asset growth is new
clients. More than 50 percent of participating firms' asset growth came
from new clients, and 88 percent of those new clients were generated from
either existing client (59%) or professional (29%) referrals. More than 80
percent of firms reported having at least one professional referral
relationship, with CPA firms (72%) and law firms (64%) being the most
common. But while almost every firm generates new business from referral
sources, some firms are significantly more successful. It was revealed that
the top 20 percent fastest growing firms, excluding investment performance,
generate two to three times the referrals as the typical firm.
"Referrals are the cornerstone to any effective growth strategy, and
the fastest growing firms in our study prove that there is still tremendous
upside for most advisors," Welling noted. "Firms that have the most success
take a proactive approach to generating new clients through referrals. They
track who gives referrals and measure results, standardize the referral
process by assigning accountability and goals to staff members, and educate
current clients on what types of new clients are best suited for the firm."
Growing Pains and Gains
Seventy-six percent of advisors are satisfied with the growth they've
experienced, and 82 percent plan to grow in the future. But advisors are
well aware of impediments to growth or areas that need improvement.
Thirty-two percent of advisors said that they have at least one major
barrier to growth and more than 75 percent reported that they have at least
one major or minor roadblock to growing. The number one barrier to growth
according to the study is finding adequate time to dedicate to business
development, an issue with 45 percent of participating firms.
Thirty-five percent of firms participating in the study reported that
hiring talent was a key challenge, ranking it the second biggest barrier to
growth and firm productivity. According to the study, advisors indicated
that managing the growth and maintaining service levels to existing clients
often did not leave enough time to focus on staff or plan for future
growth.
To that point, advisors remain confident about their abilities to serve
clients and deliver advice. Seventy-four percent of firms said that client
service was an enabler to growth, and 72 percent reported that once a
prospect was identified, closing the deal was a strength for them. Ranking
third on the list of self-reported advisor strengths was investment
returns, with 70 percent of advisors saying that was a positive for them in
terms of growth.
The Search for Scalability
The study also provides participating advisors with insights into
issues surrounding firm productivity and scalability. As an example, wealth
management firms with more than $500 million in assets under management are
25 percent more productive than smaller firms as measured by revenue per
professional, a key measure of productivity for advisory firms. Wealth
managers between $100 million and $250 million typically generate $345,000
in revenue per professional, compared to wealth management firms managing
more than $500 million that generate more than $435,000 of revenue per
professional. The gains in productivity are, in part, due to the natural
leverage that exists in larger firms. According to the study, wealth
managers with more than $500 million in assets on average have 4.9
employees per principal, whereas advisors managing $100 million to $250
million have only half that at 2.4 per principal.
But bigger is not necessarily always better when it comes to managing
growth. "While larger firms often experience higher productivity and
profitability, the real interesting story lies in examining the top
performing firms regardless of size who are strategically delegating tasks
and automating processes with technology. Firms in the top 20 percent in
terms of productivity and profitability can be up to 50 percent more
productive or profitable as compared to firms who are closer to the
average," added Welling.
The 2007 RIA Benchmarking: Growth Trends Study is part of GrowthPoint,
Schwab Institutional's integrated practice management program for RIAs
seeking proven ways to manage and evolve their businesses. GrowthPoint's
benchmarking and research program represents 1,500 advisors managing more
than $425 billion and spans from strategy through implementation -- sharing
best practices, and providing the thought leadership, guidance and
resources advisors need to succeed. GrowthPoint comprises four offerings:
Business Strategy and Planning, Human Capital, Marketing and Business
Development, and Transition Planning.
About Schwab Institutional
Schwab Institutional is a leading provider of custodial, operational
and trading support for independent investment advisors. Since 1987, Schwab
Institutional has supported independent investment advisors by offering
support and services to help grow their businesses and help their clients
reach their financial goals. As of June 30, 2007, client assets custodied
with Schwab Institutional stood at $556 billion. These assets, managed by
the approximately 5,000 independent advisor firms Schwab Institutional
currently serves, represent approximately one-third of total client assets
custodied with The Charles Schwab Corporation. Brokerage products offered
by Schwab Institutional are not FDIC insured, are not guaranteed deposits,
and are subject to investment risk, including the possible loss of
principle invested. Schwab Institutional is a division of Charles Schwab &
Co., Inc.
About Charles Schwab
The Charles Schwab Corporation (Nasdaq: SCHW) is a leading provider of
financial services, with more than 300 offices and 6.9 million client
brokerage accounts, 1.2 million corporate retirement plan participants,
200,000 banking accounts, and $1.4 trillion in client assets. Through its
operating subsidiaries, the company provides a full range of securities
brokerage, banking, money management and financial advisory services to
individual investors and independent investment advisors. Its broker-dealer
subsidiary, Charles Schwab & Co., Inc. (member SIPC, http://www.sipc.org),
and affiliates offer a complete range of investment services and products
including an extensive selection of mutual funds; financial planning and
investment advice; retirement plan and equity compensation plan services;
referrals to independent fee-based investment advisors; and custodial,
operational and trading support for independent, fee-based investment
advisors through its Schwab Institutional division. The Charles Schwab
Bank, N.A. (member FDIC) provides banking and mortgage services and
products. CyberTrader(R), Inc. (member SIPC, http://www.sipc.org) is an
electronic trading technology and brokerage firm providing services to
highly active, online traders. More information is available at
http://www.schwab.com. (1007-1631)
SOURCE Charles Schwab
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Related links:
http://www.schwab.com
CONTACT:
Michael Cianfrocca of Charles Schwab,
+1-415-667-3252, Michael.cianfrocca@schwab.com
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