It was another tough year to be a financial adviser — or at least, that seems to be one of the takeaways from Charles Schwab Corp.'s much-anticipated RIA benchmarking study.
In the study, which was released today, Schwab found that, on average, financial advisory firms generated $6,900 per client in 2009. That's a sizable drop from the $7,800 per client the firms generated in 2008. What's more, the median operating income earned by an registered investment adviser fell from 15% of revenue in 2008 to barely 10% in 2009.
Granted, the 870 firms in the survey – which manage about $300 billion in combined assets – predict a 10% bump-up in revenue this year. But that forecast seems a bit Pollyanna-ish, given the latest market gyrations and a negative public perception about investing and those who offer advice.
Adding clients will continue to be tough, coming off 2009, in which the median RIA firm increased the number of clients by 2.6%. That's half the increase in 2008.
In fact, only 58% of advisers told Schwab they are satisfied with their growth over the past three years. In last year's study, 65% said they were satisfied with their firm's growth numbers.
Still, 84% of the surveyed advisers said they plan to expand their businesses aggressively or moderately over the next five years.
How? Advisers indicated they are becoming more focused on growth strategies and planning. More than four in 10 advisers said they intend to develop a sophisticated marketing strategy to boost their firms' profiles. That's not a bad idea, since 73% of advisers noted that a lack of marketing and business development planning has held back their companies.
“Three years ago, it was about ‘how do we grow as fast as possible?' for many firms,” Bernie Clark, senior vice president and head of Schwab Advisor Services, said in a statement. “Now, advisors are much more focused on ‘how do we really plan for growth and do it in a strategic and deliberate way?'”
Top firms should have a somewhat easier time of it. Schwab found that marquee firms continue to outpace rivals in growing their operations. From 2006 to 2009, the top 20% of firms reported a compounded annual growth rate of 6.1% in assets under management. That compares to 2.4% for all other firms. Likewise, the top firms reported a 7.3% increase in compounded annual revenue (compared to 0.5% for all other firms) . These marquee firms also saw a 5.7% hike in number of clients, compared to 4% for all other firms.
In addition, the top 20 percent had 57 percent higher assets under management per professional in 2009, 63 percent higher revenue per professional, and 51 percent more clients per professional.
“As firms grow, the key to increased productivity seems to be higher assets and revenues per client, “ said Clark, “as opposed to spending less to serve the same size client.”