Average profits surged 45 percent last year among registered investment advisors surveyed in Charles Schwab’s annual benchmarking study, but don’t look for a repeat of this year, says Bernie Clark, the head of Schwab Advisor Services. The revenue and asset growth that fueled last year’s performance isn’t likely to set the same pace in 2011. Revenue and AUM for 2010 hit records for the six-year history of the survey, Schwab said. The median firm ended last year with $212 million in AUM and $1.3 million in revenue, up from median AUM of $176 million and revenue of $1.22 million at year-end 2009. (Median profit growth and net asset growth were unavailable.)
Schwab data shows that AUM is growing twice as fast among RIAs as among the wirehouses, Clark said—close to 8 percent among RIAs, compared to a wirehouse rate of 4 percent. (He expects asset growth among Schwab affiliated RIAs in the double digits.) Firms in the survey were managing 13 percent more clients than before the financial crisis, Schwab said. Among the reasons for the improved performance last year was an effort to boost efficiency and control costs; revenue per client at the median firm reached $7,300 last year, down 13 percent from the high of 2007 but up from $6,900 in 2009. One telling metric: staffing-related expenses at the typical firm went from 65 percent of revenue in 2009 to 62 percent last year.
Schwab is the largest custodian for RIAs in the country, serving more than 6,000 practices. This year’s benchmarking survey polled 820 firms with more than $300 billion in combined assets; 75 of the firms had assets of greater than $1 billion. The median firm had 186 clients. This year’s survey said 87 percent of advisors expect to grow moderately or aggressively in the coming year, a slight increase from a year earlier.
Clark said cost-conscious advisors increasingly are outsourcing certain functions such as back office chores. But a sizable share of advisors is also setting aside projects that may be important to the future viability of the practice, he added, such as creating succession plans. The benchmarking survey said that 40 percent of firms lacked such a plan, “so there’s still a lot of work to be done,” Clark said.
Aite Group research director Alois Pirker said that the trends in Schwab’s report match data he’s seen in his own work. The RIA segment makes up about 11 percent of total share in the wealth management market, up about three-quarters of 1 percent from the end of 2009. Part of that growth stems from investor attraction to the RIA model, he said, while part of it comes from breakaway brokers who are leaving the wirehouses and other channels and bringing client assets along with them. The higher revenue figures for 2010 suggest the RIAs’ investors may be more active in the markets than before, Pirker added.
It’s not a given that wirehouse assets will continue to flow from wirehouses to the RIA channel, he said. The wirehouses have stabilized some of that outflow in the fourth quarter of 2010 and the first quarter of this year, and RIA asset growth “will probably slow to a certain degree” this year, Pirker said.