The Massive Shift Occurring at Growth-Minded RIAs

“This is the most movement I’ve seen in this list in 15 years of benchmarking,” Lisa Salvi, managing director of business consulting and education at Schwab Advisor Services, said.

David Paul Morris/Bloomberg

David Paul Morris/Bloomberg

In the spring of 2020, as the coronavirus began rapidly spreading in the U.S., the stock market tumbled and left some in wealth management wondering how well RIAs would fare. Would those with thinner profit margins be forced to drastically lower compensation or cut costs?

No one will ever know for sure because the market whipsawed in April and then began steadily achieving record highs, boosting assets under management and revenue at advisory firms. Meanwhile RIAs adapted their client service and prospecting to a digital-only world.

That combination made for a stellar year at RIAs and changed the industry, according to Schwab’s 2021 RIA Benchmarking study published Tuesday.

Last year was a “catalyst for growth,” Lisa Salvi, managing director of business consulting and education at Schwab Advisor Services, told RIA Intel. At the median RIA in 2020, assets under management grew 14.5% and revenue grew 7.5% — both higher than their five-year compound annual growth rates from 2016 through 2020.

The number of clients was up 4.7%, slightly lower than the five-year compound annual growth rate of 5.2%.

RIAs didn’t achieve that growth at the expense of profitability. In 2020, the median firm across different sizes remained highly profitable.

But how RIAs grow in the future will look different. The pandemic forced an industry often knocked for its slow adoption of technology and old-school ways of doing business to change quickly — and it did so reasonably well.

More than 70% of firms generated leads from their websites, virtual prospect events, and online advertising, and 68% of all advisors still met or exceeded their client growth goals in 2020. The top-performing RIAs, which include firms of all sizes, did even better -- 81% exceeded or met their new client goals.

Advisors have proved the value of those things and are reassessing their priorities.

Growth has always been a top priority at RIAs, and it remained that way last year. But RIAs are now more focused on hiring to prepare for growth and better leveraging any digital means to achieve it. “This is the most movement I’ve seen in this list in 15 years of benchmarking,” Salvi said about the survey results.

Schwab’s benchmarking study included 1,340 RIAs overseeing an aggregate of $1.5 trillion. This was the first annual benchmarking study to include RIAs from TD Ameritrade, which Schwab acquired in 2019, creating what is by far the largest RIA custodian.

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