Last Year Was a Bad One for RIA Organic Growth

High inflation, market volatility, and a hostile hiring environment in 2022 pushed RIAs to focus only on surviving, according to Fidelity.


Illustration by RIA Intel

Organic asset growth for RIA firms fell significantly last year, according to Fidelity’s 2023 RIA benchmarking study.

The study, which surveyed 3,537 advisors at 245 RIA firms, found that volatile markets, inflation, and a constrained job market meant advisors were focused on preventing losses rather than focusing on growth.

According to the report, organic asset growth for wealth management firms sank below 4 percent in 2022, after a high of 8.2 percent in 2021.

RIAs managing more than $1 billion in assets fared slightly better with organic asset growth at 3.6 percent, compared to a growth rate of 3.2 percent for RIAs managing less than $1 billion. But that’s still well below previous years. Organic asset growth hovered between 5 and 6 percent in 2019 and 2020.

Anand Sekhar, vice president of practice management and consulting at Fidelity Institutional, said most of the slowdown can be attributed to few new clients and little asset growth from existing clients.

“In 2022 advisors were really focused on shoring up their base,” Sekhar said. “Advisors had to be proactive in responding to volatility questions and inflation and they were less focused on deepening client loyalty.”

According to Fidelity, organic asset growth from existing clients and new clients was down 40 percent from 2021 for $1 billion-plus firms. Assets from existing clients had a growth rate of just 3.3 percent at sub-billion-dollar firms and 4.5 percent growth at firms with more than $1 billion.

As markets fell in 2022, RIA fees, which are primarily set at a percent of AUM, fell in tandem.

Additionally, Sekhar said that firms stopped hiring. Because of this, productivity, as measured by revenue per full-time employee, actually rose from $347,200 in 2017 to $410,900 in 2022 for billion-dollar firms.

But in order to stay competitive, Fidelity found that many firms, particularly larger RIAs, offered steep discounts on fees which also cut into revenue. On average, firms offered a 10 to 20 percent discount on their stated fees.

“Over the last several years, firms have had to do more and more. Thirty years ago, you could be just a stock picker. Now, you want to be offering more services,” said Sekhar.

Fidelity found that more firms are now offering alternatives, direct indexing, estate planning, philanthropic planning, and cash management — all for the same fee.

“Clients expect advisors to do more for the same price. And the reason why is because they can get educated on their own. They are self-directed in some ways from an education perspective because information is at their fingertips and so advisors need to be able to stand out and be able to be more holistic,” said Sekhar.

Sekhar said that to grow, firms need to have a strong understanding of the firm’s cost and pricing pressures, have an environment that fosters young talent, and a focus on building a healthy balance sheet that can weather market downturns.

“The last thing you want is to grow rapidly and then not be able to retain those clients, right?” said Sekhar.

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