RIAs boost profitability while gaining clients, Charles Schwab study shows

Profitability is up 27% since 2011 as firms become more efficient through technology

Jul 15, 2016 @ 8:30 am

By Christine Idzelis

Registered investment advisory firms increased profitability last year as they embraced technology and gained clients, according to Charles Schwab & Co.

Profitability rose about 4% last year and is up 27% since 2011 as firms become more efficient through technology, according to the firm's RIA benchmarking study. The study was based on 1,128 firms, a majority of which had at least $250 million of assets under management. Operating income margins were 28.2% in 2015, compared with 22.2% five years ago.

RIAs are automating the back-office work, freeing up resources to spend more time with clients and gain assets, Jonathan Beatty, senior vice president for sales and relationship management at Schwab Advisor Services, said in an interview. Firms are increasingly using “electronic signatures” while integrating existing technology to reduce redundancy in work flow, he said.

Revenue last year rose $3.6 million for the median firm, representing a compound annual growth rate of 10.9% since 2011, the study shows. AUM jumped to $588 million at the median firm, from $365 million in the same five year period, while the average number of clients went up as well. For example, RIAs with more than $2.5 billion of assets had 1,089 clients last year, compared with 792 in 2011. Firms with $250 million to $500 million of assets saw the number of clients increase to 257 from 183 during that period.

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