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How RIAs hit new highs — and how they can keep growing

It doesn't get much better if you're a financial advisor.

"Advisors reported spectacular growth in 2017," says Vanessa Oligino, director of business performance solutions at TD Ameritrade Institutional.

Indeed, the typical firm increased its client base nearly 8%, and median RIA revenue growth soared nearly 16%, the biggest percentage gain in seven years, according to TD Ameritrade Institutional's annual industry benchmarking study.

Median assets under management per client last year rose to nearly $1 million, an increase of nearly 7% from 2016, the 2018 FA Insight Study of Advisory Firms reported.

With a boost from the stock market, AUM soared 20%, nearly equaling the record increase recorded in 2009, when markets first sprang back from the low of the Great Recession.

What follows is a closer look at how RIAs arrived at the peak performance they are now achieving — and what they need to do to maintain that level of excellence.

A banner year for RIAs graph 2 - Aug 2, 2018 - IAG
"Many firms used some of these gains [in profits] to improve their operations with an eye to increasing revenue and profitability for the long term," Oligino says. "They saw 2017 as an opportunity to invest in themselves."
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A typical 60/40 client portfolio appreciated 13.5% in 2017, according to the FA Insight Study.

Accordingly, market growth accounted for about two-thirds of the 2017 increase in median advisory firm AUM, the report estimates.
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RIAs hired team members at a record pace.

"This level of investment in human capital may be a signal that firms are not only hiring to accommodate current growth but anticipating future capacity needs," the report states.
RIA profit margins FA Insight report 0818
Last year's profitability decline may not be as worrisome as it first appears.

"It may simply illustrate prudent behavior on behalf of firm owners," the report states, citing increased spending on office space, technology, marketing, business development and compensation.
RIA owner income 0818
Median total income for all owners in a firm hit $611,000 last year, the second-highest mark on record.
RIA To-Do list 0818
"It's critical for advisory firms to have a growth strategy that takes into account the age and stage of their existing client base," Oligino says. "While younger clientele may be less profitable now, a healthy demographic base is key to a healthier long-term future."