Registered investment advisors saw a rebound in business in 2023, reporting that assets under management grew nearly 18% over the year to an average of $542 million, according to Schwab's latest RIA Benchmarking Study. This compares to a 7.1% loss in AUM in 2022 when the average AUM was $455 million.
Schwab's study found that the average organic growth rate was 5% in 2023, which excludes market performance and inorganic growth. Organic growth measures the change in a firm's assets from new, existing and lost customers, the watchdog said.
Schwab's annual survey of 1,304 advisory firms representing $2 trillion in AUM also found that RIA revenue grew 6.3% in 2023 to an average of $3.64 million, while the number of clients grew 4.3% to an average of 350 .
Assets from existing clients, excluding investment performance, hit a five-year high, said Lisa Salvi, managing director, advisory services, business advisory and education at Schwab Advisor Services. Customer retention has remained stable at 97% for the past decade.
Organic growth rates for high-performing firms were even higher, with those firms seeing 12% growth last year. Schwab rates all surveyed firms on 15 metrics, including five-year customer CAGR, customer attrition, operating margin and time spent on customer service, among others. The top 20% are then retired as top performers.
These top firms are more likely to have documented an “ideal client persona,” Salvi said, meaning the type of client they're building the firm to serve. These firms also have a customer value proposition and can articulate why people should choose their firm. They are also more likely to have a marketing plan. These firms had 67% more growth from new clients and new client assets.
“Once you have these three strategies in place, that's a really powerful turbocharger for growth,” Salvi said.
Top performers were also more likely to collect customer feedback in the form of surveys, one-on-one interviews, and interviews with referral customers. Such feedback helps advisors improve the customer experience and understand what services they should offer. Firms with $250 million or more in assets that collected feedback during interviews acquired 26% more assets from existing clients in 2023.
“They're really good at taking that feedback and using it to continually improve their customer experience,” Salvi said.
The top two strategic priorities for RIAs in 2024 were around growth—acquiring new clients through client referrals and business.
But talent was also a top priority, with staff recruitment to increase capacity in third and developing staff skills and abilities rounding out the top five. This last priority was ranked 10th just a few years ago, Salvi said.
More firms are creating career paths, with 76% of RIAs reporting that they have one. Schwab has also worked with firms to develop their employee value proposition, or the articulation of what an employee can expect if they work there.
“It will include things like complications and benefits — those things have to be competitive,” Salvi said. “If you have a career path or mentoring program, student loan forgiveness, pet insurance — whatever those different things are, put them in there. They will really relate to those elements that help them feel like they are growing in their career.”
Growing firms also document key strategies for client referrals and centers of influence, Salvi said. These referrals, after all, account for 67% of growth for all firms surveyed. RIAs get three times more new clients and over four times more client assets when they have those strategies documented. The average firm is working with about seven centers of influence.
Salvi said it could take a year for RIAs to receive referrals from those centers of influence.
“Keeping those relationships strong and focusing on them for a long time before you wait for a referral — that's really important,” she said.
In terms of customer relations, Salvi said this shows that customer retention has remained stable at 97% for the past decade.
“Every new customer relationship that they acquire has a high net present value in terms of what that long-term value is going to be for that new relationship,” she said. “It's not just organic growth; it's the quality of that organic growth that this industry is experiencing.”