5 charts on the 'prosperous stagnation' of record RIA profits

Registered investment advisory firms reached a record level of profitability and financial advisors notched new highs in productivity in 2024. But they can't rest on those laurels.

That's according to the analysis of a survey of the complete financial data of more than 200 advisory practices released by consulting firm The Ensemble Practice earlier this month. The five charts below illustrate some of the key results from the report, which is the latest example of research suggesting that concerns lurk beneath the record size of RIAs and the notable expansion of the largest firms in recent years.

For RIAs, the "profitability has grown to all-time highs," but that doesn't necessarily add up to "a high degree of organic growth," said Brandon Odell, a partner with Ensemble Practice. That problem isn't new to the industry, and he acknowledged that there is a lot of difficulty involved with calculating the aspects of advisory practice growth that don't stem from asset appreciation and M&A. But the results offer a fresh lens into the problem that "even our ability to go find a new client, a new relationship, is still a bit of a struggle," he said.

"We've been manifesting, maybe, the benefits of growth without further investments, but further growth doesn't happen without investments," Odell said. "Are we kind of riding the crest of a wave that's about to end?"

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Raw data and sharp truths

Last year presented a time of "prosperous stagnation" for advisory practices, the report said. Margins at the firms polled in the survey rose to a record 39.2%, and advisors generated a new high in average annual revenue, at $1,277,525. 

On the other hand, organic revenue growth outside of market gains of 3.1% came in far below the firms' average target goal of 10%. In terms of net new assets, the mean rate of expansion was just over 4%, after calculating the combined gains of 5.2% from higher client contributions, 4.1% from incoming client relationships and 1.1% from M&A deals against losses of 4.2% from customer withdrawals and 2% from exits out of their base. Almost two-thirds of the firms, 64%, brought in net new assets from incoming clients at a rate below 3%, and only "a small subset outperformed significantly," at rates above 12%, the report said.

"What set these firms apart was a greater commitment to marketing: they allocated larger budgets, engaged more dedicated marketing staff, and ultimately generated more leads through focused outreach," the report said. "Managing a firm for long-term success requires the right balance of growth, profitability and reinvestment in people and services."

The report's finding that "the fastest growing firms are the least profitable, and the most profitable companies are barely growing," calls some conventional wisdom into question. In other words, the firms that had the smallest organic growth and highest profits drew in the lowest rates of net new assets from incoming clients and vice versa. For Odell, that data signals how compensation forms the biggest expense across any advisory firm and that successful marketing takes significant investments by the company.

"They're spending, but they're getting growth out of it," he said, comparing RIAs to an asset such as real estate that requires some investment to reap future gains outside of "the passive element" waiting on capital markets to push up all assets. "Certainly there's an expense to it today, but it's also going to manifest itself into greater valuations down the line in addition to growing client relationships."

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Invest now or pay later

The routine attrition of client assets and accounts over time and the possibility of flat or negative capital markets in a given year mean that relying on the existing base of customers "doesn't work over the long term," said Brad Wales, founder of consulting firm Transition to RIA. The report reminded him of his early days in the industry working as a compliance staff member tasked with approving advisory practices' marketing efforts. The sheer lack of marketing outreach at many of the advisory practices made that a very quick task, Wales said.

Wealth management has always correlated closely with stock and bond values, so the tepid organic growth figures won't come as a surprise to many RIA veterans. And there is always the possibility of noise in the data when working with any sample of advisory firms' metrics, he noted. But the report's warnings should nevertheless raise some RIA owners' eyebrows as they think about their prospects for expansion outside of market appreciation and M&A.

"There are a lot of firms out there that are just not investing, whether money or other resources, to grow organically," Wales said. "These growth strategies are not just something you can turn on overnight and expect to see results."

Despite those looming challenges, RIAs and other advisory practices of all sizes are reeling in substantial profit margins. The record level of 2024 beat the prior new high in 2023 from last year's Ensemble Practice tracking report, 36.4%. And firms with between $500 million and $1 billion in AUM raked in the healthiest margin, at 47.2%, followed by a 39.7% clip at those with $1 billion to $3 billion, 38.9% for advisory companies with less than $500 million and 36.2% for those with more than $3 billion.

"The high productivity and profitability reached every corner of the independent advisory community," the report said. "Firms of all sizes benefitted from profit levels they have likely not experienced before."

The combination of impressive profit from "outstanding productivity gains" amid future risks led to the report's mixed conclusions about the state of RIAs.

"Such high profitability suggests that the industry may be prosperous while also running out of capacity to add clients and pushing the limits of how many relationships can be serviced by an advisor," the report said. 

Scroll down the page to see five charts tracking profitability, organic growth and leads at advisory practices, courtesy of data from The Ensemble Practice's "True Ensemble Data Insights 2025 Growth and Profitability Report." The numbers come from a survey of 230 advisory practices by the practice management consultancy and software firm ActiFi between late March and early May that asked the firms to provide their complete financial results. 

To read FP's ongoing series on launching a successful RIA, click here. To see more research from another report on why advisors and executives express some doubts about RIA growth, follow this link. 

Faster growth doesn't immediately bring higher profits

Removing M&A deals and value appreciation in the capital markets from the growth equation shows how the most profitable firms are actually expanding at the slowest rates. That is why the report said that advisory practices are operating in a state of "prosperous stagnation," in which they tend to be "very profitable but growing very slowly," according to the report. 

"While participating firms demonstrated exceptional profitability and productivity, growth remains a significant challenge," the report said. "The majority of firms are struggling to meet their growth targets, and the data suggests that strong profitability does not necessarily translate to strong growth — for many, the two may be difficult to achieve simultaneously."

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To be sure, scale matters

In an industry that continues to consolidate through M&A deals, the biggest firms can press their advantages.

"Larger firms tend to attract larger clients, which ultimately makes their teams more productive," the report said. "The ability of larger firms to attract larger clients can be ascribed to their leading

market share and presence in their market, as well as to their potential to communicate stability and resources. The size also signals success and recognition that is not lost on the investors searching for an advisor. Finally, we will see that nearly half of all opportunities to grow come from existing clients, and larger firms simply have more clients who can make such referrals."

READ MORE: Record-breaking RIA growth, in 5 charts

Incoming clients and wallet-share

Client deaths, exits from the firm and withdrawals will inevitably reduce assets under management, so RIAs striving to enlarge their businesses must find organic methods to offset those losses. That can come from adding new clients or boosting the so-called wallet share across existing client relationships.

"Growth is a cornerstone of long-term business success," the report said. "It enables firms to invest in talent, enhance resources, stay competitive, and deliver meaningful returns. While growth has been challenging for independent advisory firms over the past two years, many are responding by actively investing in marketing, team development, and operational improvements to accelerate progress."

READ MORE: What's wrong with the big RIA model, straight from advisors' mouths

Still the champion lead source, but for how long?

Lead generation still revolves around client referrals, which are the most common source of leads and also the means that bring the highest rates of conversion.

However, marketing leads are becoming increasingly important, especially at the fastest growing firms. Those rapidly expanding firms get a higher-than-average share of their leads from marketing, at 31%, compared to a 16% portion at the slower-growing practices, according to other data in the report. In contrast, the slow growers get nearly half (48%) of their leads from client referrals, while the fast-expanding firms receive just a third from them.

READ MORE: How can new RIAs grow — organically?

Key growth takeaways

Marketing investments display a 24% correlation to organic growth, which the report called "one of the strongest relationships" in the advisory practices' budgets. 

So it's no wonder that spending more on marketing staff and outreach and refining a firm's focus toward "a preeminent position in niche and smaller markets" represent two of the report's key "action steps" toward growth. The others call for firms to "create more accountability in the growth process and track the opportunities across the entire timeline" and to "be more creative and seek new sources of leads as some older methods stop being effective."