As indicated above, RIA respondents report median expense growth for their practices of only 4% in 2014, a rate of increase well below those of assets under management and revenue. Importantly, advisors were also able to keep their expense growth below the 26% rate of increase in the number of clients. This implies that they were able to serve a greater number of clients by largely leveraging their existing employee base and infrastructure.
In analyzing the breakdown of expenses by category, we observe a very consistent mix year-to-year. The only category that registered greater than a one-percent change was professional compensation, which grew from 36% of total expenses in 2013 to 40% in 2014. As noted in last year’s survey, this likely indicates that advisory firms have seen sufficient evidence of economic recovery to have confidence to distribute a greater percentage of revenue to their professional employees. It may also reflect additional compensation for serving a greater number of clients in 2014. Other categories were largely stable year to year but we do note that technology expenses fell to 8% from 10%, indicating that RIAs are able to leverage their technology platforms as they growth their practices.
Next Part 5 of 6: Net Profits and Profit Margins