RIA firms of all sizes reported cautious optimism about their growth potential and the global economic environment, according to a survey by Fidelity Institutional Wealth Services.
“New product or service introductions, as well as potential fee increases, may contribute to … better revenue realization for the next several years,” the authors wrote in the study that polled 308 RIA firms last spring. However, these growth drivers are having a stronger impact on growth than market performance, the survey found.
Other findings include:
1. Sixty-four percent of new 2011 revenue was generated by contributions from existing clients and the referrals they provided. This underscores the importance of effectively understanding and meeting existing clients’ needs, as well as delivering exceptional client service, the authors concluded.
For example, firms with under $50 million in assets under management showed the highest percentage of new revenue from client contributions, while firms with $50 million to $99 million in AUM saw the highest percentage of new revenue from client referrals.
Relative to their peers, firms in excess of $1 billion in AUM relied the most on center-of-influence referrals, as well as referral and networking groups. These largest firms were also the most successful in acquiring another book of business.
2. In 2011, advisors increased revenue by 11% to a median of $1 million, topping their three-year compound annual growth rate of 9%.
Advisors with $50 million to $99 million in AUM reported the highest revenue growth in 2011 (17%), as well as over three years (with a three-year compounded annual growth rate of 15%). These findings are consistent with their superior asset growth of 10% in 2011.
Advisors with $250 million to $499 million in AUM reported the lowest revenue growth in 2011 (8%) and over three years (with a three-year compounded annual growth rate of 6%), also consistent with their asset growth results (of 6% and 14%, respectively).
3. Smaller firms grew faster — and retained clients better — than larger firms. For 2011, the smallest firms, with less than $50 million in AUM, reported the greatest increase in assets from new clients, along with superior retention rates. This success, combined with the best rates of return, contributed to their top standing in net asset change. On the flip side, firms with $500 million to $999 million in AUM reported the lowest levels of new assets from new clients, along with some of the lowest levels of new assets from existing clients, putting them in last place for total asset growth.
4. Advisors followed differing paths to a similar level of growth. In 2011, several peer groups had total AUM growth of approximately 11%, yet achieved this growth in varying ways. Firms with $50 million to $99 million in AUM drove growth with higher flows from existing clients (9.3%), which helped offset lower investment performance (–1.2%). On the flip side, the double-digit growth among firms in the $100 million to $249 million and $1 billion-and-above categories was driven largely by new client assets and investment performance, which offset relatively high existing and departing client outflows.