New Schwab Institutional Study Shows Continued Strong Growth for Independent Investment Advisors

Advisors Cite Referrals and Effective Staffing As Significant Opportunities

SAN FRANCISCO--()--According to a recent study by Schwab Institutional, participating independent registered investment advisor (RIA) firms' assets under management grew a median of 20 percent in 2006 and revenues increased at a median rate of 16 percent during the same period. Now in its second year, the Schwab Institutional RIA Benchmarking: Growth Trends Study (study) analyzes growth trends, firm financial performance, sources of new business, organizational issues, and productivity. Additionally, the study found that from 2003 to 2006, participating firms grew their client base by eight percent annually with the average client size increasing 42 percent to $1.04 million.

"Independent advisors are experiencing phenomenal growth and the future remains very bright, because asset and revenue growth are far exceeding client growth, which should lead to increased firm profitability," said David Welling, Schwab Institutional vice president of marketing and advisor business management. "But with growth comes challenges, including the continuous search for new employees and the need to find more organizational scalability. Our research clearly indicates that the more successful firms maintain a disciplined approach to growth and plan ahead."

Schwab Institutional's RIA Benchmarking: Growth Trends Study, the largest study of its kind in the industry, provides each participating advisor with a customized Peer Benchmarking Report that enables the firm to measure its growth, market and business development efforts, and organizational structure against peer firms who are similar in size and business model, as well as the RIA industry as a whole.

It's All About Referrals

According to the study, the largest source of asset growth is new clients. More than 50 percent of participating firms' asset growth came from new clients, and 88 percent of those new clients were generated from either existing client (59%) or professional (29%) referrals. More than 80 percent of firms reported having at least one professional referral relationship, with CPA firms (72%) and law firms (64%) being the most common. But while almost every firm generates new business from referral sources, some firms are significantly more successful. It was revealed that the top 20 percent fastest growing firms, excluding investment performance, generate two to three times the referrals as the typical firm.

"Referrals are the cornerstone to any effective growth strategy, and the fastest growing firms in our study prove that there is still tremendous upside for most advisors," Welling noted. "Firms that have the most success take a proactive approach to generating new clients through referrals. They track who gives referrals and measure results, standardize the referral process by assigning accountability and goals to staff members, and educate current clients on what types of new clients are best suited for the firm."

Growing Pains and Gains

Seventy-six percent of advisors are satisfied with the growth they've experienced, and 82 percent plan to grow in the future. But advisors are well aware of impediments to growth or areas that need improvement. Thirty-two percent of advisors said that they have at least one major barrier to growth and more than 75 percent reported that they have at least one major or minor roadblock to growing. The number one barrier to growth according to the study is finding adequate time to dedicate to business development, an issue with 45 percent of participating firms.

Thirty-five percent of firms participating in the study reported that hiring talent was a key challenge, ranking it the second biggest barrier to growth and firm productivity. According to the study, advisors indicated that managing the growth and maintaining service levels to existing clients often did not leave enough time to focus on staff or plan for future growth.

To that point, advisors remain confident about their abilities to serve clients and deliver advice. Seventy-four percent of firms said that client service was an enabler to growth, and 72 percent reported that once a prospect was identified, closing the deal was a strength for them. Ranking third on the list of self-reported advisor strengths was investment returns, with 70 percent of advisors saying that was a positive for them in terms of growth.

The Search for Scalability

The study also provides participating advisors with insights into issues surrounding firm productivity and scalability. As an example, wealth management firms with more than $500 million in assets under management are 25 percent more productive than smaller firms as measured by revenue per professional, a key measure of productivity for advisory firms. Wealth managers between $100 million and $250 million typically generate $345,000 in revenue per professional, compared to wealth management firms managing more than $500 million that generate more than $435,000 of revenue per professional. The gains in productivity are, in part, due to the natural leverage that exists in larger firms. According to the study, wealth managers with more than $500 million in assets on average have 4.9 employees per principal, whereas advisors managing $100 million to $250 million have only half that at 2.4 per principal.

But bigger is not necessarily always better when it comes to managing growth. "While larger firms often experience higher productivity and profitability, the real interesting story lies in examining the top performing firms regardless of size who are strategically delegating tasks and automating processes with technology. Firms in the top 20 percent in terms of productivity and profitability can be up to 50 percent more productive or profitable as compared to firms who are closer to the average," added Welling.

The 2007 RIA Benchmarking: Growth Trends Study is part of GrowthPoint, Schwab Institutional's integrated practice management program for RIAs seeking proven ways to manage and evolve their businesses. GrowthPoint's benchmarking and research program represents 1,500 advisors managing more than $425 billion and spans from strategy through implementation -- sharing best practices, and providing the thought leadership, guidance and resources advisors need to succeed. GrowthPoint comprises four offerings: Business Strategy and Planning, Human Capital, Marketing and Business Development, and Transition Planning.

About Schwab Institutional

Schwab Institutional is a leading provider of custodial, operational and trading support for independent investment advisors. Since 1987, Schwab Institutional has supported independent investment advisors by offering support and services to help grow their businesses and help their clients reach their financial goals. As of June 30, 2007, client assets custodied with Schwab Institutional stood at $556 billion. These assets, managed by the approximately 5,000 independent advisor firms Schwab Institutional currently serves, represent approximately one-third of total client assets custodied with The Charles Schwab Corporation. Brokerage products offered by Schwab Institutional are not FDIC insured, are not guaranteed deposits, and are subject to investment risk, including the possible loss of principle invested. Schwab Institutional is a division of Charles Schwab & Co., Inc.

About Charles Schwab

The Charles Schwab Corporation (Nasdaq:SCHW) is a leading provider of financial services, with more than 300 offices and 6.9 million client brokerage accounts, 1.2 million corporate retirement plan participants, 200,000 banking accounts, and $1.4 trillion in client assets. Through its operating subsidiaries, the company 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, http://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; referrals to independent fee-based investment advisors; and custodial, operational and trading support for independent, fee-based investment advisors through its Schwab Institutional division. The Charles Schwab Bank, N.A. (member FDIC) provides banking and mortgage services and products. CyberTrader(R), Inc. (member SIPC, http://www.sipc.org) is an electronic trading technology and brokerage firm providing services to highly active, online traders. More information is available at www.schwab.com. (1007-1631)

Contacts

Charles Schwab
Michael Cianfrocca, +1-415-667-3252
Michael.cianfrocca@schwab.com
Web site: http://www.schwab.com

Contacts

Charles Schwab
Michael Cianfrocca, +1-415-667-3252
Michael.cianfrocca@schwab.com
Web site: http://www.schwab.com