New FA Insight Study Reveals Productivity Gains
but Tempered Growth Expectations for 2020
Amid the immense challenges and disruption spawned by the
coronavirus pandemic, independent registered investment advisors
(RIAs) are again proving their resiliency, course-correcting as
needed to position themselves for long-term growth, according to
new FA Insight benchmarking research from TD Ameritrade
Institutional1.
Indeed, advisory firms reported record levels of productivity
and asset growth in 2019 and attracted new clients at a steady
rate. And though COVID-19 has ushered in an age of anxiety and
uncertainty, strong operational foundations should serve firms well
as they navigate new challenges, according to the 2020 FA Insight
Study of Advisory Firms: Growth By Design.
“RIAs are getting creative about how they address the
operational and business development challenges brought on by
COVID-19,” said Vanessa Oligino, Managing Director of Business
Performance Solutions at TD Ameritrade Institutional. “It’s times
like these that breed innovation, so we expect many RIAs will
emerge even stronger as they discover new opportunities to
excel.”
Optimism, to be sure, was shaken by a pandemic that gripped the
United States in the middle of the survey effort. Firms providing
data prior to March 13 – when a national emergency was declared --
had a much different outlook for the future than those completing
the survey in the weeks that followed. Though both groups
experienced nearly identical revenue growth in 2019, expectations
for 2020 growth were nearly four percentage points less among those
reporting after March 13.
Pre-Pandemic Performance is Mixed
In 2019, RIAs saw a 6.6 percent increase in new clients and a 23
percent increase in median assets under management (AUM) from 2018
– three percentage points above 2009’s previous all-time high.
In fact, assets resulting from new clients and business
development efforts made up 55 percent of the increase in AUM, with
market appreciation accounting for the remainder.
And the wide swings in the market that began in 2018 impacted
firms last year in other ways, not the least of which was declining
revenues. Median revenue growth in 2019 was 9.5 percent, a drop
from 13.2 percent in 2018, and operating profit margins dipped from
2018 to 17.6 percent.
In addition, rising costs outpaced revenue increases at most
firms, and at 41.3 percent, overhead expenses as a share of
revenue, hit its highest level since 2008.
Productivity Enhancements & the Question of Fees
Thanks to an increased use of integrated technology and
automation tools, such as team collaboration tools,
tele-conferences, document management and signature applications,
advisory firms have improved productivity and reduced their
reliance on support personnel. With the broadening array of
technology solutions, firms may be scaling back on non-revenue
roles in favor of supporting revenue generators through greater use
of technology or outsourcing.
Further, 70 percent of firms rely on one platform or application
as a central “hub” – often times the CRM system -- for accessing
all other technology tools, and 81 percent of firms have the
capability for data to flow automatically across software
applications, up from 61 percent in 2016.
RIAs are also adding headcount now for long-term growth. Roughly
20 percent noted that new team members were major contributors to
firm growth, while 28 percent credit their existing team’s
expertise as a key driver.
One area for growth that remains largely untapped by advisors is
pricing. In 2019, RIAs typically generated 96 percent of their
revenues from an AUM-based fee. Only six percent of firms in this
year’s study report collecting at least half of their revenues from
fees not tied to the AUM.
Implementing a minimum client fee, effectively a pricing floor,
can enhance performance. Firms with a disciplined adherence to a
minimum fee, for example, report 42 percent greater profitability.
But even though alternative pricing strategies have the potential
to drive stronger revenue growth, a majority of firms said they are
satisfied with the ease of the industry-standard AUM-based fee
model, and have no expectation of making a change.
Cultivating New Pipelines for Growth
RIAs rank business development as their top growth challenge,
second only to the economic climate. Social media was the third
most cited source for attracting new clients, behind the main new
business sources: client referrals (49 percent) and referrals from
“centers of influence” (22 percent), such as accountants, lawyers
and other non-competing professionals whose client or prospect base
is similar.
Firms cited in-person client and prospect events as the
activities that accounted for the greatest share of marketing
budgets in 2019, along with digital advertising. Formal referral
programs ranked lower on the list, despite the importance of
referrals to the bottom line.
But with so many uncertainties right now around the viability of
events, firms need new ways to engage. Social media tools and
electronic communications are more important than ever for staying
present in the lives of clients and prospects, the report said. And
webinars, podcasts, targeted video presentations and virtual
classrooms may all provide new channels to replace in-person
events.
“COVID-19 may force changes, but history shows us that
independent advisors are adaptable and resilient. We’re confident
that advisory firms will continue to find ways to pursue their
growth goals,” said Oligino. “Unprecedented times can bring
unprecedented opportunities: it is up to strategic,
forward-thinking advisors to seize the day and act.”
For more than 12 years, FA Insight has set the standard for
independent benchmarking research for the investment advisory
industry. The 2020 FA Insight Study of Advisory Firms: Growth By
Design is based on responses to an online survey fielded February 5
to April 30, 2020. This year, 345 individuals from qualifying firms
– those with a minimum of $100,000 in annual revenues and in
business for at least 12 months -- completed submissions.
Click here for the executive summary of 2020 FA Insight Study of
Advisory Firms: Growth By Design.
FA Insight is a product of TD Ameritrade Institutional, division
of TD Ameritrade Inc. “FA Insight” is a trademark owned by TD
Ameritrade IP Company, Inc.
About TD Ameritrade Institutional
TD Ameritrade Institutional empowers more than 7,000 independent
registered investment advisors to transform the lives of their
clients. It provides powerful technology and resources that help
simplify running a business and let advisors spend more time doing
what matters most — serving their clients. Through meaningful
innovation, steadfast advocacy and unwavering service, TD
Ameritrade Institutional supports RIAs as they build businesses
that positively impact their clients and communities. TD Ameritrade
Institutional is a division of TD Ameritrade, Inc., member
FINRA/SIPC, a brokerage subsidiary of TD Ameritrade Holding
Corp.
About TD Ameritrade Holding Corporation
TD Ameritrade provides investing services and education to
approximately 13 million client accounts totaling approximately
$1.5 trillion in assets, and custodial services to more than 7,000
registered investment advisors. We are a leader in U.S. retail
trading, executing more than 3 million daily average revenue trades
per day for our clients, one-third of which come from mobile
devices. We have a proud history of innovation, dating back to our
start in 1975, and today our team of nearly 10,000-strong is
committed to carrying it forward. Together, we are leveraging the
latest in cutting edge technologies and one-on-one client care to
transform lives, and investing, for the better. Learn more by
visiting TD Ameritrade’s newsroom at www.amtd.com, or read our
stories at Fresh Accounts.
Brokerage services provided by TD Ameritrade, Inc., member FINRA
(www.FINRA.org) / SIPC (www.SIPC.org).
1 TD Ameritrade Institutional is a division of TD Ameritrade,
Inc., a brokerage subsidiary of TD Ameritrade Holding
Corporation
Source: TD Ameritrade Holding Corporation
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Alyson Nikulicz Communications & Public Affairs W: (201)
755-4116 alyson.nikulicz@tdameritrade.com
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