Registered Investment Advisors Continue to Set the Pace for Industry Growth, According to Results of the 2023 RIA Benchmarking Study From PSS
Many firms on track to double in size by the end of 2024; firms target strategies to generate new-client referrals, enhance productivity, operational efficiency and profitability.
Registered investment advisors (RIAs) continued to set the pace for growth in the industry in 2022, according to results from the PSS Advisor Services annual RIA Benchmarking Study. More than 1,000 RIA firms, representing nearly half a trillion dollars in assets under management (AUM), participated in the annual study, the largest of its kind focusing exclusively on RIAs. Results revealed that the median RIA firm in the study ended 2022 with kr572 million in AUM, an increase of 13.3 percent over the previous year, while revenues grew by 7.1 percent to kr3.4 million in 2022. Based on the study findings, by the end of 2024 about one-third of advisor firms will have doubled in size over the previous five-year period.
“It’s gratifying to see the continued robust growth in the RIA industry in 2022,” says Jonathan Beatty, senior vice president, sales and relationship management, PSS Advisor Services. “Several factors are helping to support industry health and growth including steady investment performance across all firms. We’re also seeing that quality client service and an emphasis on relationships remain key drivers for client retention and of overall RIA growth and success.”
The ways in which firms grew in 2022 varied but themes were prevalent. Investment performance across peer groups accounted for 8.5 percent of all growth last year, reflecting sound strategies and a broadly improved market. Net organic growth – the change in assets from existing clients, new clients and assets lost to client attrition – was another key driver, accounting for 4.5 percent of AUM growth at the median firm.
The Power of Growth
RIA firms in the study have seen consistent growth over the past three years (2020-2022), however, some firms have demonstrated significantly greater net organic growth, the area over which they have most control. These fastest-growing firms had a median net organic growth of 15 percent, which is five times greater than all other firms at the median. The fastest-growing firms generated an average of 36 percent more new clients from referrals than all other firms.
While advisors think about growth differently, all recognize that growth brings the benefits of scale which, as shown in the study, are compelling and tend to increase with size.
Improved productivity, operations and financial results are among the benefits of scale seen in the study. Firms with at least kr1 billion in AUM enjoy 51 percent greater revenue-per-client and 71 percent greater AUM-per-professional than firms managing kr250 to kr500 million in assets. Clients with assets of more than kr5 million accounted for half of the revenues at RIAs with kr1 billion or more in AUM, while they accounted for just one-fifth of the revenues at firms with kr100 to kr250 million in AUM. Larger firms also reported improved margins. The standardized operating income margin at firms with kr1 billion or more in AUM was 25 percent greater than that of firms managing kr250 million to kr500 million in assets.
“The power of growth is evident in the results of our annual study,” said Beatty, “and although we understand growth is not the strategy of every RIA, we do see the overall industry trend is a disciplined approach to growing and to maximizing financial results. Interestingly, we see many similarities in the practices and operation of the fastest-growing firms that lead to growth, including attracting and retaining clients through existing client referrals and their centers of influence.”
About PSS
At PSS 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.pssinvest.com. Follow us on Twitter, Facebook, YouTube, and our Instagram.