Assets Per Client Tops $2 Million Mark, Schwab Study Says

A cornucopia of good news hides in the pages of the Schwab 2018 Benchmarking Study.

The study marked record assets, increased, and more readily accessible third-party support and new client approaches as harbingers of a boom period for investment advisors in the second half of 2018.

“Independent advisors have certainly enjoyed buoyant investment returns, but have also grown their businesses organically and strategically, which positions them well for sustainable growth even in the face of market volatility,” said Jonathan Beatty, senior vice president, sales and relationship management, Schwab Advisor Services.

It’s been a good year for independent advisors. So, what worked in their favor? These five takeaways from the study reveal what went right for advisors in 2018.

Average assets per client surpasses $2 million mark: For the first time in the Study’s history, average assets per client are more than $2 million for firms with over $250 million in AUM. According to the study, “Advisory firms that document both their ideal client persona and client value proposition as part of an overall marketing strategy attract more new clients and assets from new clients compared with those who do not.”

Technology growth continues. It’s no longer hyperbole to say that turning large chunks of the practice over to digital technology is commonplace. In fact, the move to digital is no longer a luxury – it’s a necessity. “Improving productivity through the use of technology is critical for advisors,” said David Neiterman, business development manager at Smartleaf, in Boston, Mass. “As advisors service more clients; they need to continue to offer high levels of service.” Technology enables advisors to more easily automate parts of their business, like rebalancing and tax management, so they can focus on high value-added activities and relationships.

Third-party relationships a blessing to smaller practice owners. The clear winners in the continued migration of advisors to independence are the burgeoning number of third-party platforms that cater to advisory firm’s needs. “In the example of my firm, with no legacy technology systems or processes in place, I’m able to leverage external operational providers to maximize my time with clients and minimize my time spent on the day-to-day responsibilities,” said Michael Tanney, co-founder and managing partner of NYC-based Wanderlust Wealth Management, an independent investment advisory firm. “We can stay a boutique firm while building a scalable and sustainable business model. Less than ten years ago, I would have had a more difficult time developing my business effectively on my own.”

Booming stock market a driver of industry growth. The Schwab study stated that the median CAGR for various size firms from 2013 through Q1 2018 was about 11 percent. “While on the surface this seems impressive, one only has to look at how the S&P 500 performed over the same period - about 15 percent CAGR,” said Tanney. “The vast majority of the growth was a direct result of equity exposure and not new client assets.” The same analysis can be applied to the increase in fees collected, Tanney said. “Assuming the fee charged to clients is a flat percentage rate, as assets rise in value, the fee increases accordingly,” he said.

Advisors catering to all clients. Historically, advisors have tended to prioritize wealthy clients and spend less time with more middle-class clients. However, advisors are increasingly bucking norms, parceling out more of their time and expertise to clients at all asset levels. “Clients seem to be equally serviced regardless of the size of their assets, based on the number of clients per professional found in the study,” said Stephan Unger, assistant professor of economics at Saint Anselm College. There are, as always, caveats on the client attention front. “Client education on cyber security insurance does tend to increase proportionally to the size of the assets under management,” Unger said. “It’s also worth noting that the ideal client profile is more important to clients with bigger assets under management than for clients with less assets under management.”

The study found that competition for talent is really percolating. In the next 12 months, 73 percent of advisory firms are planning to hire and 41 percent recruited from other RIA firms.

All in all, the Schwab study is a “green light” for an industry that can use more good news – and more business.

Beatty said, “With the success of this industry comes more competition, and the firms who thrive are those who effectively amplify their brands, invest in their people, focus on best practices and deploy the right technology to drive operational excellence and an optimal client experience.”

Brian O'Connell is a former Wall Street bond trader, and author of the best-selling books, The 401k Millionaire and CNBC's Guide to Creating Wealth. He's a regular contributor to major media business platforms. Brian may be contacted at [email protected].

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