A client retention level of 97% helped to drive client referrals and to produce record levels of AUM and revenues last year, according to study of 1,025 independent RIAs by Schwab.

“The RIAs are staying true to their mission, they are doing their best for their clients and this earns them the loyalty of their clients,” says Jon Beatty, senior vice president, sales and relationship management, Schwab Advisor Services. He adds that the fee-based RIA business model is a significant factor: “With a payment system that is aligned with the investors’ goals, you have a recipe for success.”

Since 2006, Schwab has been studying the RIA space with an annual benchmarking that is the largest of its kind looking exclusively at RIAs. This year, the study increased its sample size by 25%. Participants are drawn from the roughly 7,000 advisors who custody assets with Schwab.

Four themes emerged in this year’s study, according to Beatty. First off, advisors have grown revenues in a challenging market. Second, they are improving productivity by beefing up their back offices. Third, they are deploying strategies to build their businesses. And fourth, their businesses are becoming more complex as they hire more people and expand their technology offerings.

The study found that the median RIA firm increased revenues by 12% and AUM by 3.8%, marking a second consecutive year of record highs for the industry.

New client growth came in at 4.7% at the median – in terms of new clients net of client departures – flat from last year but up from 3.5% in 2009. When looking solely at new clients, firms grew by 8.2%, while the 20% of firms bringing in the most clients added new clients by 14.7% or more.

“RIAs successfully grew their businesses to record levels in 2011 despite strong economic headwinds that the industry continues to face,” Beatty said in a statement.

While revenues and assets are up, satisfaction with growth over the past three years was down slightly at 67 percent, versus 69 percent in 2010, the study found. The new figures are more consistent with 2009 levels of 65 percent, and may be attributed to longer sales cycles by RIAs, according to Schwab.

A majority of advisors, at 55%, said their number one initiative in 2012 is focused on growing their firm and 84% have a growth-related initiative among their top three priorities, the study found.

In terms of the top enablers of growth, participating firms cited maintaining the quality of client service (81%), closing new client business (74%), implementing new technologies (63%), and maintaining efficient operations (61%).

In contrast, a growing percentage of firms are citing strategic planning and execution as a barrier to growth (28% in 2011 versus only 19% in 2007). In fact, a number of firms have switched their highest priority initiatives away from marketing and business development, and instead are prioritizing strategic planning and execution, the study found. Overall, one in seven had strategic planning or succession planning as their top special initiative in 2011, where only one in ten did in 2010. Despite this change, only 42% of firms have a written strategic plan in place.

“A written strategic plan acts as a roadmap that helps advisors stay on track, make critical business decisions, and build long-term value for the firms,” Beatty said in a statement.

Profits grew 14% at the median firm in 2011, mostly driven by revenue growth. Principal income (the total base, bonus and firm profits per principal), another measure of profits, was also up: the median income was $341,000, up 5% from the previous year and 26% up from 2009. Additionally, operating income for the median firm was $156,000.

Productivity, in terms of revenue-per-professional and per-total-staff, also grew in 2011, again driven by revenue growth. At the median firm, revenue-per-professional increased 6% from $354,000 to $374,000, while revenue-per-total-staff was up 10%, from $210,000 to $229,000, the study found.

While AUM and revenues saw record levels at the majority of firms, revenue and assets per client have not seen the same record highs. Revenue per client, at $8,000, was up 9% versus $7,300 the year prior.

The cost to bring on new clients has also risen. Productivity of business development – measured as the cost to bring in the next $1 million in AUM – declined, as the cost increased by nearly 20% in 2011. It appears that longer sales cycles are contributing to that increase. But despite these increased costs, closing new client business is nonetheless a top enabler of growth according to 74% of firms, according to the study.

Schwab is increasingly using the study results to help its advisors improve their practices, Beatty says. Advisory firms that participate in the study receive a complementary Peer Benchmarking Report customized to their firm’s size and business model.

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