Independent Advisers Experience Significant Business Growth in '06

Schwab’s RIA Benchmarking: Growth Trends Study also found that between 2003 and 2006, participating firms grew their client base by 8% annually, with the average client size increasing 42% to $1.04 million.

“Independent advisers are experiencing phenomenal growth and the future remains very bright, because asset and revenue growth are far exceeding client growth, which should lead to increased firm profitability,” said David Welling, Schwab Institutional vice president of marketing and adviser business management, in a press release.

Growth Sources

The largest source of asset growth is new clients, the study found. More than 50% of participating firms’ asset growth came from new clients, and 88% of those new clients were generated from either existing client (59%) or professional (29%) referrals. More than 80% of firms reported having at least one professional referral relationship, with CPA firms (72%) and law firms (64%) being most common.

While almost every firm generates new business from referral sources, some firms are significantly more successful, the survey revealed. The top 20% fastest growing firms, excluding investment performance, generate two to three times the number of referrals as the typical firm.

Seventy-six percent of advisers said they are satisfied with the growth they have experienced, and 82% plan to grow in the future. However, 32% of advisers said they have at least one major barrier to growth and more than 75% reported they have at least one major or minor roadblock to growing. The number one barrier to growth cited is finding adequate time to dedicate to business development, an issue with 45% of participating firms.

Challenges

Thirty-five percent of firms participating in the study reported that hiring talent was a key challenge, ranking it the second biggest barrier to growth and firm productivity. According to the study, advisers indicated that managing the growth and maintaining service levels to existing clients often did not leave enough time to focus on staff or plan for future growth.

Advisers expressed confidence in their abilities to serve clients and deliver advice. Seventy-four percent of firms said client service was an enabler to growth, and 72% reported that once a prospect was identified, closing the deal was a one of the firm’s strengths. Ranking third on the list of self-reported adviser strengths was investment returns, with 70% of advisers saying that was a positive for them in terms of growth.

Schwab Institutional’s RIA Benchmarking: Growth Trends Study provides each participating adviser with a customized Peer Benchmarking Report that enables the firm to measure its growth, market and business development efforts, and organizational structure against peer firms who are similar in size and business model and the RIA industry as a whole. The 2007 RIA Benchmarking: Growth Trends Study is part of GrowthPoint, Schwab Institutional’s integrated practice management program for RIAs.