2016 RIA Benchmarking Study from Charles Schwab

2016 RIA Benchmarking Study from Charles Schwab July 2016 Media contact: Rob Farmer Charles Schwab 415-667-0083 [email protected] For general inf...
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2016 RIA Benchmarking Study from Charles Schwab July 2016 Media contact: Rob Farmer Charles Schwab 415-667-0083 [email protected]

For general informational purposes only.

Advisor Services

Executive summary 

Independent financial advisory firms have maintained a ten-year growth trajectory despite numerous and varied investment environments.



2015 results showed that stable client relationships and robust business fundamentals drive growth, while technology and human capital increasingly align to drive operational efficiency.



In 2015, asset and revenue growth eased somewhat but remained positive. Assets under management (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%.



Firms added a significant number of new clients over the past five years—between 28% and 50% more at the median–while average client size increased by 22% at the median over the same period.



Despite eased growth, profitability – which grew by 27% at the median over the past five years – was driven by improvements in operational processes and technology-driven efficiencies.



Firms 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.



Firms are preparing for organic and inorganic growth opportunities to drive future growth. Thirty-three percent (33%) of firms that manage over $1 billion, and almost 25% of firms with under $1 billion in AUM, are actively looking to acquire.

1 The Cerulli Report: Advisor Metrics 2015: Anticipating the Advisor Landscape in 2020. Growth represents asset CAGR from 2005 to 2014. Median results for all firms $250 million or more in AUM, unless otherwise noted. 2016 RIA Benchmarking Study from Charles Schwab, fielded January to March 2016. Study contains self-reported data from 1,128 firms. Participant firms represent various sizes and business models categorized into 12 peer groups—7 wealth manager groups and 5 money manager groups by AUM size. For general informational purposes only.

Charles Schwab Advisor Services

RIAs continue to win in the marketplace

+9.2% CAGR1

+10.9% CAGR1

+5.2% CAGR1

$3,595

$588

350

262 $2,262

$365

2011

2015

Assets under management In millions

2011

2015

Revenue In thousands

2011

2015

Clients

1 Median compound annual growth rate (CAGR) over the 5-year period from 2011 to 2015 for all firms $250 million or more in AUM. Past performance is not an indicator for future results. Median results for all firms $250 million or more in AUM. 2016 RIA Benchmarking Study from Charles Schwab, fielded January to March, 2016. Study contains self-reported data from 1,128 firms. Participant firms represent various sizes and business models categorized into 12 peer groups—7 wealth manager groups and 5 money manager groups, by AUM size. For general informational purposes only.

Charles Schwab Advisor Services

Over half of firms doubled their AUM and one-quarter doubled their revenues since the lows of 2009

AUM

Revenues

57%

25%

15% CAGR

15% CAGR

Past performance is not an indicator for future results. Results for all firms $250 million or more in AUM. 2016 RIA Benchmarking Study from Charles Schwab, fielded January to March, 2016. Study contains self-reported data from 1,128 firms. Participant firms represent various sizes and business models categorized into 12 peer groups—7 wealth manager groups and 5 money manager groups, by AUM size. For general informational purposes only.

Charles Schwab Advisor Services

Firms of all sizes are exhibiting strong growth year after year Assets under management

8.4% 5-Year CAGR

In millions Median results by peer group (AUM) 5-Year AUM CAGR (2011-2015)

$3,588

2011 2015

9.0% 5-Year CAGR

9.2% 5-Year CAGR

10.2% 5-Year CAGR

$95

9.0% 5-Year CAGR

$600 $159

$100M$250M

$211

$347

$250M$500M

$389 $500M$750M

9.7% 5-Year CAGR

$2,195

$1,447

$853

$892

$526

$750M$1B

$1B$2.5B

Over $2.5B

Past performance is not an indicator of future results. 2016 RIA Benchmarking Study from Charles Schwab, fielded January to March, 2016. Study contains self-reported data from 1,128 firms. Participant firms represent various sizes and business models categorized into 12 peer groups—7 wealth manager groups and 5 money manager groups, by AUM size. For general informational purposes only.

Charles Schwab Advisor Services

Transformative change is occurring at firms regardless of size $487,000

$470,000

$826M

929 Clients

574 Clients

$957,000

$696,000 25.2% CAGR*

$541M

$1,662M

$270,000

$434,000 18.7% CAGR

$522M

$1,231M 100

380 Clients

726 Clients

$744,000

$390,000

$1,050M

17.0% CAGR

85 Clients

$1,178M

26.0% CAGR*

75

2011

274 Clients

$500M

$920M

Revenue per professional 5-year AUM CAGR*

Clients Beginning AUM (in millions)

2015

BPS

Clients Ending AUM (in millions)

* Indicates M&A and/or advisor join

$587,000 14.9% CAGR

2011 total professionals 2015 total professionals

Revenue per professional

1,157 Clients

$499,000

$250M

+ $517,000

484 Clients

$460M

75

330 Clients

$702,000

$371M

100

1,164 Clients

464 Clients

$478M

95

$1,738M

16.0% CAGR

Basis points on assets for $2 million relationship

90

376 Clients

$750M

$1,000M

$1,250M

$1,500M

$1,750M

Assets Under Management (AUM) Past performance is not an indicator of future results. 2016 RIA Benchmarking Study from Charles Schwab, fielded January to March, 2016. Study contains self-reported data from 1,128 firms. Participant firms represent various sizes and business models categorized into 12 peer groups—7 wealth manager groups and 5 money manager groups, by AUM size. For general informational purposes only.

Charles Schwab Advisor Services

5

Revenue growth is compounded for larger firms Revenue In thousands Median results by peer group (AUM) 5-Year revenue CAGR (2011-2015)

11.6% 5-Year CAGR

2011 $19,992

2015

11.0% 5-Year CAGR

11.0% 5-Year CAGR

11.9% 5-Year CAGR

$634

$1,160

$100M$250M

$1,408

$2,416

$250M$500M

9.2% 5-Year CAGR

$3,600 $2,302 $500M$750M

11.2% 5-Year CAGR

$5,321

$11,108

$8,258

$4,777

$2,935

$750M$1B

$1B$2.5B

Over $2.5B

Past performance is not an indicator of future results. 2016 RIA Benchmarking Study from Charles Schwab, fielded January to March, 2016. Study contains self-reported data from 1,128 firms. Participant firms represent various sizes and business models categorized into 12 peer groups—7 wealth manager groups and 5 money manager groups, by AUM size. For general informational purposes only.

Charles Schwab Advisor Services

Productivity ratios remain strong: results per professional increase with firm size 53

Clients per professional

$100M-$250M

$390,000

51

Revenue per professional

Clients per professional

$250M-$500M

$500,000

51

Revenue per professional

Clients per professional

$500M-$750M

$510,000

41

Revenue per professional

Clients per professional

$750M-$1B

$585,000

43

Revenue per professional

Clients per professional

$1B-$2.5B

$576,000

45

Revenue per professional

Clients per professional

Over $2.5B

$813,000

Revenue per professional

2016 RIA Benchmarking Study from Charles Schwab, fielded January to March, 2016. Study contains self-reported data from 1,128 firms. Participant firms represent various sizes and business models categorized into 12 peer groups—7 wealth manager groups and 5 money manager groups, by AUM size. For general informational purposes only.

Charles Schwab Advisor Services

Productivity has driven 27% growth in profitability in last five years

Past performance is not an indicator of future results. Median results for all firms $250 million or more in AUM. Results from the 2012, 2013, 2014, 2015 and 2016 RIA Benchmarking Study from Charles Schwab. For general informational purposes only.

Charles Schwab Advisor Services

Advisors are creating enduring businesses by investing in client relationships, technology, and talent Firms embrace three important ideas that allow them to grow year after year.

Institutionalize the business

Create opportunity

Focus on growth

1

Acquire new clients through client referrals

2

Acquire new clients through business referrals (37%)

3

Enhance strategic planning and execution

(29%)

4

Improve productivity with new technology

(25%)

5

Improve satisfaction for existing clients

(19%)

6

Recruit staff to increase firm's skill set/capacity (17%)

7

Make changes to org structure and roles

(44%)

(16%)

Results for all firms $250 million or more in AUM. 2016 RIA Benchmarking Study from Charles Schwab, fielded January to March, 2016. Study contains self-reported data from 1,128 firms. Participant firms represent various sizes and business models categorized into 12 peer groups—7 wealth manager groups and 5 money manager groups, by AUM size. For general informational purposes only.

Charles Schwab Advisor Services

Average number of clients is on the rise Total clients Median results by peer group (AUM)

$3,121,000

2015 Average relationship size

1,089

2011 2015

$2,272,000

792

690 $1,765,000 $1,800,000 $1,270,000 $938,000

165

257

329 267

428

439

313

183

110 $100M$250M

100-250

$250M$500M

250-500

$500M$750M

500-750

$750M$1B

750-1B

$1B$2.5B

1-2.5B

Over $2.5B

Over 2.5B

Past performance is not an indicator of future results. 2016 RIA Benchmarking Study from Charles Schwab, fielded January to March, 2016. Study contains self-reported data from 1,128 firms. Participant firms represent various sizes and business models categorized into 12 peer groups—7 wealth manager groups and 5 money manager groups, by AUM size. For general informational purposes only.

Charles Schwab Advisor Services

Strength of the advisor-client relationship drives growth: referrals provide 75% of new assets for RIAs 2015 Net asset flow growth rates by source Average results by peer group (AUM) Existing client referrals COI referrals Other marketing M&A or advisor join

2.9% 3.1% 1.7%

1.5% 3.4%

1.8%

2.5%

2.0%

2.5% 4.6% 3.2%

1.8%

1.8%

1.6%

1.8% 1.1%

1.3% 0.4% $25M$100M

25-100

0.2%

0.3% $100M$250M

100-250

$250M$500M

250-500

1.4% 0.3%

0.5% $500M$750M

500-750

$750M$1B

750-1b

0.6% Over $1B

Over 1b

“Referrals provide 80% of new assets for RIAs” is for all firms with $100 million or more in AUM. 2016 RIA Benchmarking Study from Charles Schwab, fielded January to March, 2016. Study contains self-reported data from 1,128 firms. Participant firms represent various sizes and business models categorized into 12 peer groups—7 wealth manager groups and 5 money manager groups, by AUM size. For general informational purposes only.

Charles Schwab Advisor Services

Firms are focused on talent acquisition to propel firm success Firms planning to add relationship managers or investment professionals in 2016

54%

60%

61%

79%

97%

$100M-$250M

$250M-$500M

$500M-$750M

$750M-$1B

Over $1B

Firms planning to add support and administrative staff in 2016

58%

64%

57%

64%

91%

$100M-$250M

$250M-$500M

$500M-$750M

$750M-$1B

Over $1B

Firms planning to add dedicated management in 2016

8%

4%

7%

4%

9%

$100M-$250M

$250M-$500M

$500M-$750M

$750M-$1B

Over $1B

Results by peer group (AUM). 2016 RIA Benchmarking Study from Charles Schwab, fielded January to March 2016. Study contains self-reported data from 1,128 firms. Participant firms represent various sizes and business models categorized into 12 peer groups—7 wealth manager groups and 5 money manager groups by AUM size. For general informational purposes only.

Charles Schwab Advisor Services

Growth increases demand for unique qualifications and capabilities

Chief Compliance Officer

Chief Operating Officer 47%

Over $1B

32%

$500M-$1B $250M-$500M

29%

$500M-$1B

20%

$250M-$500M

14%

Under $250M 7%

Under $250M 6%

Chief Investment Officer

Operations Director 74%

Over $1B

38%

$500M-$1B

$250M-$500M

37%

$250M-$500M

22%

67%

Over $1B

$500M-$1B

Under $250M

55%

Over $1B

Under $250M

26% 21% 10%

Results by peer group (AUM). 2016 RIA Benchmarking Study from Charles Schwab, fielded January to March 2016. Study contains self-reported data from 1,128 firms. Participant firms represent various sizes and business models categorized into 12 peer groups—7 wealth manager groups and 5 money manager groups by AUM size. For general informational purposes only.

Charles Schwab Advisor Services

2016 study includes 1,128 RIA firms representing nearly three-quarters of a trillion dollars in assets under management Peer Groups All firms $250MM+

$100MM$250MM

$250MM$500MM

$500MM$750MM

$750MM$1B

$1B$2.5B

Over $2.5B

$588

$159

$347

$600

$853

$1,447

$3,588

9.2%

10.3%

9.2%

9.0%

9.7%

9.0%

8.4%

$15

$6

$11

$14

$25

$51

$43

5.4%

6.9%

5.6%

4.5%

5.3%

5.6%

3.9%

$3,595

$1,160

$2,416

$3,600

$5,321

$8,258

$19,992

10.9%

11.9%

11.0%

9.2%

11.2%

11.0%

11.6%

350

165

257

329

428

690

1,089

5-year client CAGR1

5.2%

6.5%

5.2%

4.8%

5.6%

6.1%

5.2%

Average account size ($M)

$1.60

$0.93

$1.27

$1.85

$1.76

$2.17

$2.96

Standardized operating margin

27.2%

22.0%

26.8%

29.4%

30.1%

26.0%

27.0%

21

15

19

22

25

24

24

Metrics (median) 2015 Ending AUM ($M) 5-year AUM CAGR1 2015 Organic growth2 ($M) 5-year organic growth2 CAGR1 2015 Revenues ($000) 5-year revenue CAGR1 2015 Ending number of clients

Age of firm (years)

1 Median compound annual growth rate (CAGR) over the 5-year period from 2011 to 2015. Past performance is not an indicator for future results. 2 Organic growth from net asset flows is the change in a firm’s assets from new, existing, and lost clients before investment performance is taken into account, and it excludes the growth from acquisition or divestitures, and from advisors joining or leaving. Median results by peer group (AUM), unless otherwise noted. 2016 RIA Benchmarking Study from Charles Schwab, fielded January to March, 2016. Study contains self-reported data from 1,128 firms. Participant firms represent various sizes and business models categorized into 12 peer groups—7 wealth manager groups and 5 money manager groups, by AUM size. For general informational purposes only.

Charles Schwab Advisor Services

Methodology & Disclosures

For general informational purposes only. This information is not a recommendation or endorsement of, referral to, or solicitation on behalf of any investment advisor, whether or not named, quoted, or described in this deck. Past performance is not an indicator of future results. Schwab designed the RIA Benchmarking Study to capture insights in the RIA industry, based on study responses from individual firms. The 2016 study provides information on such topics as asset and revenue growth, sources of new clients, products and pricing, staffing, compensation, marketing, technology, and financial performance. Fielded from January to March 2016, the study contains self-reported data from 1,128 firms that custody their assets with Schwab Advisor Services and represent nearly three-quarters of a trillion dollars in AUM, making this the leading study in the RIA industry. This self-reported information was not independently verified. Since the inception of the study in 2006, more than 3,000 firms have participated, with many repeat participants. Participant firms represent various sizes and business models. They are categorized into 12 peer groups—seven wealth manager groups and five money manager groups—by AUM size. Unless otherwise noted, study results are for all firms with $250 million or more in AUM, representing the vast majority of total assets managed by this year’s participants. © 2016 Charles Schwab & Co., Inc. (Schwab). All rights reserved. Member SIPC (www.sipc.org). Schwab Advisor Services™ serves independent investment advisors and includes the custody, trading, and support of Schwab. Independent investment advisors are not owned by, affiliated with or supervised by Schwab. (0716-2657)

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