Schwab recently released its 2022 RIA Benchmarking Study. The survey contains responses from over 1,200 RIAs representing $1.8 trillion in AUM to questions about firm operating performance, strategy, and practice management. The survey is a great resource for RIA principals to see how their firm’s performance and direction measure up against the average firm. We have highlighted some of the key results from the study below. You can download the full survey here.
As part of the survey, Schwab asked RIA principals to rank the top priorities for their RIA. Perhaps unsurprisingly, amidst the Great Resignation and continued tight labor market, recruiting staff to increase the firm’s skill set and capacity became the top-ranked priority for respondent firms in 2022.
Acquiring clients through client referrals and business referrals remained key focus points in 2022, ranking second and third, respectively. Enhancing strategic planning and execution ranked fourth, followed by productivity improvements at number five and acquiring new clients through digital channels at number six.
Firms over $250 million reported a median staff attrition rate of 6.5%, while top performing firms reported a median staff attrition rate of 0%. The survey indicates that top performing firms are more likely to have nontraditional benefits packages and offer more professional development and career support opportunities, which suggests that such benefits may help to promote staff retention.
The firms participating in the survey have seen strong five-year growth on average. Between 2016 and 2021, AUM grew at a compound annual growth rate (CAGR) of 14.1%, while revenue and number of clients grew at a respective 11.3% and 5.1% CAGR over the same time period. The top-performing firms (Schwab defines this as the top 20% based on a holistic assessment across key business areas) saw more robust AUM growth than other firms due to extraordinarily strong net organic growth. AUM growth has outpaced revenue growth consistently in recent years, suggesting that there has been some compression in the fees realized by respondent firms. All of the RIA size categories identified in the survey reported double-digit annualized growth in AUM over the last five years, although firms managing less than $2.5 billion in AUM generally experienced marginally higher growth than firms over $2.5 billion in AUM.
M&A contributed to growth for many firms over the last five years. 6% of firms acquired new clients by M&A in 2021, and 21% of firms have completed an acquisition in the last five years. Over the past five years, 27% of firms gained new clients by bringing on an advisor with an existing book of business.
Succession planning is a key concern for the industry, particularly since only 55% of firms under $250M AUM have a written succession plan. The number increases slightly to 65% for firms over $250M AUM and 80% for top performing firms. Eventually, of course, all of these firms will need an exit strategy for the partners, whether through internal succession or a sale to a third party.
As indicated by the Schwab survey, many RIAs lack a written succession plan, but it’s nevertheless a critical issue that all firms will have to face eventually. For more information on RIA succession planning, refer to our whitepaper, Buy-Sell Agreements for Wealth Management Firms.
Respondent firms reported increases in productivity between 2019 and 2021. Over this period, AUM per professional increased from $99 million to $112 million, and the number of clients per professional increased from 53 to 59. Also, over this period, hours per client for operations and administration decreased from 17 to 16, while hours per client for client service decreased from 34 to 31, suggesting that firms have continued to improve efficiency.