Independent registered investment advisors had a record year in 2011, in terms of both assets and revenues, and are now setting their sights on strategic planning and execution, according to Charles Schwab’s latest benchmarking study of the sector.

Independent registered investment advisors had a record year in 2011, in terms of both assets and revenues, and are now setting their sights on strategic planning and execution, according to Charles Schwab’s latest benchmarking study of the sector.

Despite the flat market performance last year new clients boosted assets under management at RIAs, with the median firm’s client assets rising by 3.8 per cent.

The median firm increased its revenue by 12 per cent, marking the second consecutive year of record highs for the industry.

It should be noted that measuring everything at the median, with no mean, can cause outlying firms to dominate results. The study covered over 1,000 firms, managing more than $425 billion in combined assets, with 105 firms managing at least $1 billion.

In terms of “new clients through the door,” the median firm grew its client base by 8.2 per cent, but taking client departures into account client growth registered at 4.7 per cent, Charles Schwab said. This was flat from 2010 and up from 3.5 per cent in 2009.

Meanwhile, the top 20 per cent of firms who were managing to add the most clients expanded their client base by 14.7 per cent or more (not including departures).

Jon Beatty, senior vice president, sales and relationship management at Schwab Advisor Services, said RIAs had “stayed true to their core mission” of client service, and had achieved growth through this.

Growth and strategic planning

However, slightly fewer advisors felt satisfied with the way their businesses grew last year than the year before (67 per cent versus 69 per cent). This year, growth is the number one priority for over half of RIAs. To achieve this, they believe they have to: maintain quality of client service (81 per cent), close new client business (74 per cent), implement new technologies (63 per cent), and maintain efficient operations (61 per cent).

Meanwhile, RIAs are shifting their focus toward strategic planning. Around 28 per cent of advisors cited this area as one of the barriers to growth – if not done properly. This had grown from 19 per cent in 2007.

“In fact, a number of firms in the study have switched their highest priority initiatives away from marketing and business development, and instead are prioritizing strategic planning and execution,” Schwab said.

Currently, 42 per cent of firms have a written strategic plan in place, according to the study, but one in seven said strategic or succession planning had been a “special initiative” in 2011.

Beatty said that the best managed firms were twice as likely to have a written strategic plan in place, allowing them to “maximize their resources by prioritizing efforts across client service, operations and business development.”

Productivity

At the median, profits grew faster than revenue, at 14 per cent. Another measure of profits, principal income (the total base, bonus and firm profits per principal), also grew 5 per cent in 2011, averaging $341,000 at the median.

Productivity in terms of revenue-per-professional rose by 6 per cent last year, to $374,000, and per-total-staff also rose to $229,000. Revenue on a per-client basis rose 9 per cent to $8,000.

Last year, business development became less efficient as the cost of bringing in $1 million in assets under management shot up 20 per cent in 2011. “It appears that longer sales cycles are contributing to that increase,” said Schwab.