The downward slide in the market during the fourth quarter of 2018 took a big toll on investment advisory firms' assets under management, yet most managed to keep revenue growth on track, at least for now.
RIAs recorded, on average, 14.3% revenue growth in 2018, slightly higher than 2017’s number, and grew their client base yet again by 7.5%, slightly below 2017 but exceeding every other year since the annual survey began a decade ago. Yet assets under management at the firms grew by only 5.9%, compared with 17.4% in 2017.
“That was due to the market downturn that happened late in the year,” said Vanessa Oligino, a director at TD Ameritrade Institutional, who presented the findings of the firm’s annual FA Insights survey at Elite LINC, a gathering of over 200 of the custodian’s top advisors.
The question remains open whether that slowdown in AUM growth will catch up and depress the revenue numbers in 2019, but overall, Oligino said the state of the RIA industry was strong. The survey was completed by more than 400 registered investment advisory firms.
Revenue per revenue-generating employee was up 14% for the year, hitting an average of $547,000, she said, with compensation levels for lead advisors jumping 12.5%. Only associate advisors’ revenue fell over the year, down 8.5%, suggesting advisors are hiring younger, less experienced associates, possibly right out of college.
Justin Young, the CEO and partner of BCJ Financial Group, a platform for independent advisors, said the search for talent was among the biggest problems his advisors deal with, and that he has encouraged his team to take a wider view of candidates from different backgrounds. “Everything is teachable but the core customer service skills,” he said. Even meeting a barista at a coffee shop with good customer service skills is a potential hire, he said. “I tell my team to keep an eye on those people. Start a relationship."
Young said at his firm they begin the process for bringing on a new advisor when current capacity is around 80%—meaning actual work is taking up 80% of the time available for that work. But he’s pushing that down to 70% to account for the increased time it takes to find the right person.
“The talent pool is very hard,” he said. “We run into trouble getting people in all the roles.”
This year, FA Insights took a deeper dive into “standout” RIAs, or those in the top quartile of revenue growth and profit margins, and found some unique characteristics, including a higher reliance on acquisitions to drive growth. Eighty percent of these standout advisory firms have made an acquisition in the past five years, compared with less than half of other large firms, the survey found.
And despite the trouble finding talent, the successful RIAs increased full-time employment by 12% between 2016 and 2018, more than three times the head count growth reported at other, lower-performing large firms.