Profitability hit an all-time high last year for those RIA firms which reached the big league benchmark of $250 million or more in assets under management.
The median operating income margin for those firms was 28% in 2015, a 27% increase since 2011, according to the 2016 RIA Benchmarking Study from Charles Schwab.
Fueling the increase is value-added services, says Jonathan Beatty, senior vice president, sales and relationship management, Schwab Advisor Services.
Impressive RIA growth in assets, revenue and clients, as well as profitability over the past five years, can be credited to advisers adding "high value solutions that investors are sticking with," according to Beatty.
Beatty pointed to a 97% client retention rate as noted in the 2016 RIA Benchmarking Study as further proof that, despite turbulent markets, advisers' increasing emphasis on adding value with more planning services and in-house specialists is paying off.
Median revenue, for example, has soared 63% from 2011 to 2015, from $2.2 million to $3.6 million, at firms with $250 million or more in assets under management. And AUM rose to $588 million last year, from $365 million in 2011, at a median compound annual growth rate of 9.2%.
"Founders are leveraging scale and efficiency to transfer internal resources to value-added services," Beatty says. "Call it an arms race of offerings."
ARE YOU EXPERIENCED?
The trend will continue to accelerate, he predicts.
"I think you're going to see advisers offer more experiential solutions, which consumers now expect," Beatty says. "One firm has hired a specialist to help baby boomers down size, both financially and emotionally. And you'll see specialists help clients liquidate their businesses, helping owners with the numbers and their feelings."
Mergers and acquisitions will also increase, the Schwab study found.
One-third of firms that manage over $1 billion, and almost 25% of firms with under $1 billion in AUM, are actively looking to acquire, according to the study. Last year alone, transaction volume among RIA firms reached a ten year high of 84 deals, up 56% from 2014.
Quote"I think you're going to see advisers offer more experiential solutions."
"Firms have created expertise and are having more success at executing deals," Beatty notes. "There are also more sellers coming to the table with more urgency."
TECH KEY TO GROWTH
And technology will remain key to advisers "relentless focus on growth," he adds.
Improving productivity with new technology is already a top priority for a quarter of advisers surveyed by Schwab.
"To remain competitive, firms are leveraging productivity through technology," Beatty says. "They're achieving scale and efficiency, staying current and providing a modern experience for their clients."