10th Annual RIA Benchmarking Study by Charles Schwab Indicates That Focus on Client Relationships and Operational Excellence Sustains Growth and Profitability in Challenging Market Environments

SAN FRANCISCO--(BUSINESS WIRE)--

Independent financial advisory firms reported that they have maintained a ten-year growth trajectory despite numerous and varied investment environments, according to results from Schwab's 2016 RIA Benchmarking Study (Study). The Study underscores the critical importance of the advisor/client relationship as the bedrock of firms' strength and resilience, and as a driver of growth. The data also reveals that stable client relationships coupled with robust business fundamentals is a recipe for success in firms of all sizes, as technology and human capital increasingly align to drive operational efficiency.

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"Despite the recent sideways market, advisors are delivering a compelling value proposition to clients," said Jonathan Beatty, senior vice president, sales and relationship management, Schwab Advisor Services. "It's clear that some advisors are tackling the complexities of growing a business and have achieved continued success across a number of key metrics. The long-term trends remain positive and RIA firms work to evolve into enterprises built to last."

Transformative Growth Anchored by Strength of Client Relationships

Over the past year study results show, the growth trajectory for firms' AUM and revenues eased somewhat, but remained positive:

• AUM rose to $588 million in 2015 from $365 million in 2011, at a median compound annual growth rate (CAGR) of 9.2%.
• Revenues grew to $3.6 million in 2015 from $2.3 million in 2011, at a CAGR of 10.9%.

Solid relationships between advisors and clients have been central to driving this growth during tumultuous market environments. Independent advisors in the Study doubled down on existing client relationships in the past year, and subsequently benefitted from high client-retention rates and referral levels:

• Average client size increased by nearly a quarter (22%), as advisors spent more time reassuring clients and expanding the scope of their relationships.
• Additionally, client retention rates remained sky-high at 97% over the period of market turbulence, a testament to the trust advisors have built with their client base over time.
• Meanwhile, last year roughly 75% of new clients [at firms with $100 million or more in AUM] came through referrals.

"A significant proportion of the growth that independent advisors have experienced can be attributed to deep advisor-client relationships, which is critically important in challenging investing environments," said Beatty. "More recently, advisors have focused on serving existing clients, providing counsel in volatile markets, and as a result these advisors are entrusted with more assets."

The intersection of technology and human capital

Increasing productivity and scale remains high on the list of goals for firm leaders, and this can translate into improved operating margins and increased profits:

• A quarter (25%) of advisors reported that their top priority is improving productivity with new technology.
• Firm profitability was up in the last year, rising 4% from the year prior and driven by continued improvements in operational processes and technology-driven efficiencies. This continues a longer term trend reported across these firms – profitability has jumped 27% in the past five years.

Firms are also focused on human capital, and are looking to strategically source the best talent to propel firm success:

• At mid-sized firms with $500MM-$750MM in AUM, 61% plan to add relationship managers or investment professionals this year and 57% plan to add support staff.
• Firms across peer groups strategically hire team members with unique qualifications:
  • 83% of firms have at least one CFP® on staff
  • 55% have at least one CFA on staff
  • 42% have at least one CPA on staff, and,
  • 23% have at least one JD on staff.

Navigating future growth

While firms will continue developing their technology, talent, and client base organically, a notable portion is already also preparing for inorganic opportunities to catalyze growth in needed areas:

• A third (33%) of firms that manage over $1 billion, and almost 25% of firms with under $1 billion in AUM, are actively looking to acquire. Study participants reported 208 instances of some type of M&A activity, and 149 instances of "join" activity, in the past five years.
• Additional industry M&A data from Charles Schwab shows that last year alone, transaction volume among RIA firms reached a ten year high of 84 deals, up 56% from 2014.

"Top performers are firms that view growth—both organic and inorganic—as non-negotiable, but achieve this growth without sacrificing the depth and quality of their existing client relationships," Beatty concluded. "They find innovative ways to streamline operations, seize opportunity and achieve scale by taking advantage of best practices and resources at their fingertips."

About Schwab's RIA Benchmarking Study

Schwab's annual RIA Benchmarking Study is the largest of its kind focused exclusively on RIAs. This year, 1,128 firms representing nearly three-quarters of a trillion dollars in AUM completed the survey, reflecting their experiences in 2015 as well as their annual growth rates from 2010 to 2015. The study categorizes participants into 12 peer groups—seven wealth manager groups and five money manager groups—by AUM size. The results, unless otherwise noted, include all firms with at least $250 million in AUM, representing the vast majority of total assets managed by this year's participants. All results are self-reported and not independently verified.

Detailed findings can be found at www.aboutschwab.com/press/research

About Charles Schwab

At Charles Schwab we believe in the power of investing to help individuals create a better tomorrow. We have a history of challenging the status quo in our industry, innovating in ways that benefit investors and the advisors and employers who serve them, and championing our clients' goals with passion and integrity.

More information is available at www.aboutschwab.com. Follow us on Twitter, Facebook, YouTube, and LinkedIn.

Disclosures

Through its operating subsidiaries, The Charles Schwab Corporation SCHW provides a full range of securities brokerage, banking, money management and financial advisory services to individual investors and independent investment advisors. Its broker-dealer subsidiary, Charles Schwab & Co., Inc. (member SIPC, www.sipc.org), and affiliates offer a complete range of investment services and products including an extensive selection of mutual funds; financial planning and investment advice; retirement plan and equity compensation plan services; compliance and trade monitoring solutions; referrals to independent fee-based investment advisors; and custodial, operational and trading support for independent, fee-based investment advisors through Schwab Advisor Services. Its banking subsidiary, Charles Schwab Bank (member FDIC and an Equal Housing Lender), provides banking and lending services and products. More information is available at www.schwab.com and www.aboutschwab.com.

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Schwab Advisor Services™ serves independent investment advisors and includes the custody, trading, and support of Schwab.

Independent investment advisors and Schwab are independent of each other and are not affiliated with, sponsored by, endorsed by, or supervised by each other. For informational purposes only.

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