RIAs are riding higher than ever, and the good times may be far from over.

Revenue and profitability for registered independent advisory firms have hit all-time highs, according to Charles Schwab's 2015 RIA Benchmarking Study.

Nearly half of the 1,000 firms participating in the study have doubled their revenue since 2009, while profitability, measured as standardized operating margin, rose 36% over the same period and now stands at 27% for the median firm in the study.

Assets under management increased by 75% for about half of surveyed firms over the past five years.

What's more, RIAs are winning over more high-net worth clients with investable assets over $500,000, increasing productivity among professional staff and reaping the benefits of greater operational efficiencies.

"Advisors are continuing to evolve from practices to enterprises," says Jonathan Beatty, senior vice president of sales and relationship management for Schwab Advisor Services. "We're seeing the continued institutionalization of the business model creating scale and efficiencies through optimizing back office procedures."


And advisors are well positioned for even more gains, Beatty says.

Schwab estimates that RIAs control only about 7% of the market for high-net-worth assets, Beatty notes, with more than $23 trillion in high-net-worth investor assets still held outside of the industry. "That is really a huge opportunity," he says, "and we see advisors making the acquisition of new clients a top priority."

Indeed, over the past five years the number of new clients rose by more than 24% for half of the firms surveyed in the study. Top-performing firms added 10% or more new clients, while the median firm added 5% more clients.


RIAs are also taking on larger clients. The average account size is now $1.9 million, while the top-performing firms in the study report an average account size of $3.9 million.

Operating margins have been critical to RIAs' recent success. Over the past five years, the standardized operating margin for top-performing firms rose 19% to 38%, according to the study. The median standardized operating margin for all surveyed firms jumped 36% since 2010, reaching 27% last year.

Client segmentation and workflow improvement have been key factors in achieving those robust margins.

Twice as many firms had formal client segmentation strategies last year than in 2011, for example. Those increasingly sophisticated strategies epitomize the alignment of RIAs' client service and business models, according to Beatty.


Attracting top talent has emerged as another priority for RIAs.

One in four firms surveyed said recruiting is among their leading priorities in 2015, with an eye toward increasing a firm's skillset and capabilities. In particular, RIAs are bringing in professional management to better handle increased operational complexity at their firms.

Most firms are hiring for positions that can help continue driving growth. Three-quarters of surveyed RIAs said they plan to add either relationship managers or investment professionals. Ten percent of firms want to add "dedicated management" to focus on running business operations, which can add capacity for other professionals to focus on client service and new business development.

Chief operating officers are especially in demand: nearly half of all surveyed firms with more than $1 billion in assets employ a chief operating officer compared to 34% for firms $500 million to $1 billion in size.


The biggest dark cloud on RIAs' currently sunny horizon is complacency, according to Beatty.

Asked if the long-running bull market was responsible for more of advisors' success than the study allowed, he conceded that the market's steady six-year rise was "influential" in asset growth. But sustained client acquisition numbers were more indicative of RIAs' long-term health, he argued.

As for robo advisors, aka automated investment management, Beatty said the phenomenon was more of an opportunity than a threat.

Some advisors will employ robo technology to gather new clients with smaller assets and be able to service them profitably, he says. Other firms will use the new technology to open up their practice to mass affluent clients who may start with mostly automated investment management and light human advice, but hopefully graduate to a more full service offering.

Most advisors, Beatty maintains, "don't feel threatened" by robo advisors as competition.

Read more:

Register or login for access to this item and much more

All Financial Planning content is archived after seven days.

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access