RIA firms are getting bigger -- and smarter.

The median firm in Schwab Advisor Services' annual RIA Benchmarking Study expanded AUM by an annualized 12.8% between 2009 and 2013 -- "with 50% of that growth coming from organic acquisitions and new assets of existing clients," says Jonathan Beatty, senior vice president, sales and relationship marketing at Schwab Advisor Services. 

The study also found that the median firm grew revenues even faster, with annualized 13.6% growth over the same time.

"Skeptics would say it's just market growth," Beatty adds -- but while the booming equities market played a role, the Schwab study also found an emphasis on strategic management practices and a focus on growth and staff retention, he says.


Growth continues to be a main focus for RIAs, with 36% of firms doubling both AUM and revenue since 2009. These firms are expected to grow at this pace over the next five years, according to Schwab.
"RIAs are now building enterprises with sustainable growth," Beatty says.

The study, which uses responses from more than1,100 firms, identified a number of ways that RIA firms are improving their strategic management.

On one critical front, succession planning, it found that 49% of RIA firms had a formal plan in place in 2013 -- up from 44% the previous year. And 61% of firms executed a strategic plan last year, compared with 52% of firms in 2012.

Many owners of larger RIA firms are also hiring professional management to run the day-to-day operations of the firm. According to the study, 47% of firms with over $1 billion in AUM have a chief operating officer.


The most popular growth strategy, cited by 80% of RIA firms in the study, is using referrals -- with 41% of firms relying on client referrals and 39% turning to business referrals.

"All of these strategies show a desire to create an enduring enterprise," says Beatty.

One growth challenge noted by the study: "fierce competition" for talent. Half of new RIA firm hires during the 2009-2013 study period came from other RIA firms, the Schwab report found.

In response, firms are working to boost retention and create long-term opportunities for their employees, according to Schwab. The largest firms, with more than $1 billion in assets, have more than twice as many professional staff with equity than smaller firms (those with $250 million to $500 million).

Other advisors are expanding their firms by tapping other professionals. For instance, 70% of firms managing $1 billion in assets have at least one CPA among their staff, and more than half have a lawyer on the team.

"Most large firms now employ CPAs and JDs and part of the staff," says Beatty. "These decisions are putting them on the path toward becoming enduring businesses built to serve investors now and into the future."

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