The annual "benchmarking" study delves into the priorities and approaches of advisors collectively running more than $1.7 trillion of money.

A survey of more than 1,300 wealth advisory businesses in the US shows that embracing digital technology and other modern working methods helps top performing firms to spend more time looking after clients. With firms suffering a drop in assets in 2022 as markets fell, the stakes for getting business strategy right have increased.

The 2023 RIA Benchmarking Study from Schwab Advisor Services, part of Charles Schwab, found that annually, top performing businesses spent 20 per cent less time per client on operations and admin (13 hours) and 10 per cent more time on client service per client (31 hours).

The respondents to the Schwab survey collectively manage more than $1.7 trillion of client money.

Such findings, while not necessarily a great surprise, underscore why the wealth industry talks a great deal about how modern technology, including AI/machine learning, can free advisors from the drudgery of manual work so that they can spend more time with clients – creating more loyal customers as well as finding new ones.

In other findings, advisors worked on differentiating themselves by offering personalized investment strategies such as direct indexing, value-based/impact investing, thematic investing, and separately managed accounts. The study also showed that firms using behavioral finance saw 3.3 times more new assets from existing clients in 2022.

Chiming with some of the messages sent to this publication, the study found that recruiting talent ranked as a high strategic priority with 77 per cent of firms reporting that they had hired in 2022 and 75 per cent planning to in 2023. More firms than ever (37 per cent) recruited from colleges and universities.

Firms also looked for more experienced talent from other RIAs ((27 per cent) and professional services firms outside the industry (21 per cent). Firms are focusing on cultivating talent internally – developing staff capabilities and skills moved up four spots in the ranking of strategic priorities from two years ago. Additionally, 75 per cent of firms reported offering career path/progression opportunities to keep employees engaged.

While 2022 presented challenges – assets under management fell 7.1 per cent for the median firm – authors of the study said the industry “continues to be strong,” with organic growth and client retention results demonstrating the “enduring appeal of the independent model.” At the end of 2022, total AuM stood at $455 billion among RIAs. Since 2017, they have chalked up a compound annual growth rate of 10 per cent

Referrals
For all firms, referrals from clients and business partners remained the leading driver of growth, accounting for 70 per cent of new clients and 69 per cent of new client assets, the study said.

“There is an opportunity for firms to develop referral plans – across the study, only 34 per cent have client referral plans and 25 per cent have business partner referral plans documented. Results have shown that those with written referral plans saw stronger outcomes from those channels,” it said. 

In compiling the index, 10 measures of firms' performance, and five activities that have been implemented, were examined. Among the measures of performance are five-year client compound annual growth rate; five-year net asset flows CAFG; five-year revenue CAGR; 2022 AuM growth rate from new client assets; 2022 AuM growth rate from existing client assets; client attrition; staff attrition; operating margin (reported); time spent on client service, and time spent on operations. With activities implemented, the Index includes standardized workflows in CRM for more than 50 per cent of tasks; written strategic plan; written succession plan; ideal client persona/profile, and client value proposition. 

The report also reflects on the fast pace of M&A activity in recent years (see a separate story here from DeVoe & Company). Some 19 per cent of firms have merged with, or acquired, another firm in the past five years; 24 per cent of firms have had an advisor with a book of business join in the past five years.