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Schwab 2022 Benchmarking Shows Organic RIA Growth

Transactions between registered investment advisory firms typically monopolize attention on wealth planning, as practices of all sizes attract competitors and billion-dollar companies grow through high-priced transactions. But the big news has nothing to do with mergers and acquisitions anymore.

Instead, the headline is that RIAs are better at growing just by being themselves. In 2021, attracting new customers and more dollars from existing customers, or “organic” growth, reached its highest point in five years, according Schwab Advisor Services 2022 RIA benchmarking study.

Consulting firms of all sizes experienced “huge” expansion last year, with median increase in client assets under management up 19.5%, revenue up 23.2% and number of customers up 6.2%, according to the study. These figures include companies that grew through acquisitions, which are approaching their 10th year of scorching business. RIA dealmaking set a ninth consecutive record in 2021, with 307 acquisitions, a peak of nearly 50% of the 205 deals recorded in 2020, according Echelon Partners. Nearly half of the acquisitions, or 145, involved companies with more than $1 billion in assets.

Last year’s buying spree put $576 billion in client assets in the hands of acquirers – an asset base that, combined with the stock market’s return of nearly 27% last year, has automatically increased revenue for clients who pay fees based on their assets under management.

But it’s growth without the external impetus — the “fins” — of an acquired company or a strong stock market that’s particularly prized. Organic growth demonstrates the validity, viability and promise of a company’s internal business model. This is proof that in a highly fragmented industry with approximately 700 new entrants each yeara consulting firm alone can increase its client base, its wealth and its profits.

Organic growth “is very indicative of strategy, customer experience and value proposition,” said Lisa Salvi, managing director of business consulting and education at Schwab. Top-performing RIAs posted 16.1% organic growth in 2021, the highest of any company, according to the study. Schwab defines the best on a proprietary 15-point scale whose metrics include five-year compound growth rates for revenue, customer churn and operating margin.

Brandon Kawal, director at Advisor Growth Strategies, an advisory practice consultancy, said that “anecdotally we see a separation between those who are growing organically and those who are not.” The depressed stock market, he added, “does not protect the unprotected”. The companies’ long-term organic growth rate is around 4%, while “top producers” average 10% to 15%, he said.

Here are the main conclusions of the Schwab report, which is a barometer for independent wealth managers. Some 1,218 consulting firms, representing $1.8 trillion in assets under management, participated in the survey. For an overview of last year’s study, Click here.