Despite a difficult 2022 that presented challenges in the market and high inflation, a new survey by Charles Schwab finds the registered investment advisory (RIA) industry saw successful organic growth and client retention results, proving a surprisingly above par year.
Even as assets under management (AUM) decreased 7.1% for the median firm, the Schwab Advisor Services’ 2023 RIA Benchmarking Study found assets from new and existing clients reached their second-highest point in five years. Client retention stayed at 97% for the fifth year in a row, and client growth increased 6.2% for all firms, in line with Schwab’s five-year annualized growth rate.
Schwab’s report—now in its 17th year—surveyed 1,300 RIAs with over $1.7 trillion in AUM.
RIA firms with over $250 million in AUM averaged a 5.1% asset decrease and a 6.2% in net organic growth, while those with over $250 million in AUM saw average assets fall by 7.6% and net organic growth increase by 7.8%.
For all firms surveyed, referrals from clients and business partners were the leading driver of growth, accounting for 70% of new clients and 69% of new client assets.
Schwab’s report notes future opportunities for firms to develop referral plans, as just 34% said they have client referral strategies and 25% document business referral plans. According to Schwab, those with referral plans saw 1.6 times more new clients generated from existing client referrals and four times more new clients from business partner referrals.
Inorganic strategies continued to fuel growth as nearly half of all firms pursued this approach over the past five years, citing talent acquisition, succession planning, AUM growth, and niche markets as reasons for doing so. Additionally, half of all firms say they will seek inorganic growth opportunities in the future.
“Firms continue to prioritize attracting new talent as well as developing their existing teams to ensure they deliver the services and experiences through the lens of their ideal client,” said Lisa Salvi, managing director of Business Consulting and Education for Charles Schwab Advisor Services, in the report.
Strategies for productivity gains
Schwab’s report finds that firms are using digital tools, workflows, and client segmentation strategies to gain efficiencies, improve productivity, and create capacity for advisors to offer personalized services while scaling their business.
Top performing firms who used these tools typically spent around 20% less time (13 hours) annually per client on operations and about 10% more time (31 hours) per client on client services, found Schwab.
As for client segmentation, Schwab adds that it can help firms realign revenue with cost to serve and free up capacity so advisors can focus their time on serving clients and generating new business. Firms with a segmentation strategy were likelier to manage more clients per professional than those without one.
Personalization tactics to drive growth
Advisors who offer personalized investment strategies could have the upper hand, Schwab notes in its study. Customized indexing vehicles include direct indexing, value-based/impact investing, thematic investing, and separately managed accounts.
Other advisors leveraged behavioral finance, and as a result, delivered more impactful client experiences by increasing client satisfaction. Nearly half of firms reported using behavioral finance for more than 50% of client interactions, with 88% of top performing firms using the strategy. Firms who implemented behavioral finance saw 3.3 times more new assets from existing clients in 2022.
Other tactics used to educate clients about the markets and financial planning included one-on-one education, newsletters, engaging with next generation and/or family, articles/blogs for websites, social media, white label materials from partners, educational workshops, podcasts, and more.
RIAs prioritize talent
Talent and recruiting remained a top strategic priority for firms in 2022, with 77% of RIAs reporting new hires in 2022 and 75% planning to hire in 2023. Thirty-seven of firms recruited candidates from colleges and universities, 27% selected from other RIA firms, and 21% considered candidates from non-financial professional services firms.
Developing staff capabilities and skills ranked as number six in strategic priorities, up four spots from 2021. Additionally, 75% of firms say they offer career path/progression opportunities, and 40% of firms promoted staff in 2022.
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Amanda Umpierrez is the Managing Editor of 401(k) Specialist magazine. She is a financial services reporter with over six years of experience and a passion for telling stories and reporting news. Amanda received her degree in journalism and government and politics at St. John’s University. She is originally from Queens, New York, but now resides in Denver, Colorado with her partner. In her free time, Amanda enjoys running, cooking, and watching the latest drama show.
