Independent financial advisory firms have yet to reach their full maturity, according to a new study by Moss Adams. The Financial Performance Study of Advisory Firms surveyed 743 independent firms that have been in business for at least a year with at least $50,000 in annual gross revenue in 2007.

All aspects of independent planning firms are growing steadily each year. In 2007, compared to 2006, the typical firm grew its client base by 9%, its assets under management by 18% and its revenue by 22%. The typical firm owner earned $259,000 in pretax income—more than double that of the typical owner four years ago.

The study identifies five types of independent firms: early solo (one owner/professional); mature solo (practices established before 1999); early ensembles (multiple professionals, administrative and support staff; less than $2 million annual revenue); mature ensemble ($2 million to $5 million annual revenue); and market dominators (more than $5 million annual revenue). Market dominators, which made up only 1% of independent firms just five years ago, are now 8% of the industry.

All of the firms reported strong growth rates from 2005 to 2007. The highest rates came from early solos, early ensembles and market dominators. While it's no surprise that early solos and ensembels grew rapidly by adding small numbers of staff to service more clients and assets, market dominators' growth means the largest firms in the industry have not yet reached their full maturity, the study notes. Larger firms are taking better advantage of their staff and economies of scale.

For all firms to develop, the study says, they must either go deep within an investment strategy or go broadly across a suite of services. The best owners make sure each service that they offer can be used by a significant portion of clients, adds value and is something clients will pay for. In their early stages, top firms practice disciplined client selection and outsource noncore functions. As they grow, they spend more time building client relationships and developing their businesses. Owners of top solo firms spent more than half their day on such activities last year.