Assets, revenues and net profits reached all-time highs at financial advisory firms in 2007, according to a new study by Rydex released Wednesday. Expenses, however, also rose, forcing net profit margins to drop to 24% in 2007, from 28% in 2006. The Rydex AdvisorBenchmarking 2008 Annual Survey illustrates the results of a study of 1,020 registered investment advisory (RIA) firms during the period from March to May of last year.

Exchange-traded funds (ETFs) continued to become increasingly popular last year: 90% of advisors have begun to use more of the daily traded funds since 2002. Nearly 75% believe ETFs will be just as or more important to a portfolio than stocks, bonds and mutual funds in the next five years. Advisors have also increased their use of alternative funds, with nearly 20% doubling the amount of alternatives they use in their portfolios in the past five years. The top reasons they are using more alternatives, advisors say, is for absolute returns, to access noncorrelating assets and to utilize different investment techniques.

The biggest challenge advisors face today is finding clientele, which they leave mostly to be taken care of by referrals from existing clients. Of the clients they do have, more than a quarter is what they consider to be high-net worth. Nonetheless, the average firm lost 14% of its existing client base last year. And while it is not surprising that the largest group of clients at advisory firms today is baby boomers, it is somewhat startling that only 37% fit into this group.

Advisors feel they are not doing enough client-facing activities, the study says, as they report spending equal amounts of time on these activities as they do on office administrative tasks-10%. They are outsourcing some functions, however, including tax filing, bookkeeping and human resources functions.

As many advisors near retirement age, 34% do not have a timeline for exiting the industry, the study reports. Nearly 25% do not yet have a succession plan. Nearly half are standardizing their practices, making for a smooth transition in the case of a possible sale.