SOURCE: Rydex|SGI

Rydex|SGI

September 14, 2010 10:25 ET

Financial Advisors Capture Growth Opportunities, According to National Survey Conducted by Rydex|SGI's AdvisorBenchmarking, Inc.

Average AUM for RIAs in 2009 Increased 28% to $174 Million From $136 Million in 2008; Increasing Assets Under Management Is Cited as RIAs' Most Important Goal

ROCKVILLE, MD--(Marketwire - September 14, 2010) -  The 2010 Rydex|SGI AdvisorBenchmarking Annual Study released today showed record-breaking growth in assets under management (AUM) for the registered investment advisor (RIA) industry, following the upturn in the market environment in 2009.

The study reveals that advisory firms, on average, increased assets from $136 million in 2008 to $174 million in 2009. This average amount, a 28% increase, is the highest in the survey's 11-year history.

More than half (53%) of advisors surveyed cited increasing AUM as a top goal, and almost half (42%) expect their AUM to grow another 11-20% over the next five years. Most advisors (79%) see that growth coming from referrals from existing clients.

While assets hit an all-time high for advisors, the current study revealed that expenses were slightly higher and revenues were off the highs hit in 2007. Profit margins, however, were consistent with 2008 levels, around 19%, but were much below levels seen five years ago.

Thirty-one percent of advisors said they reduced principal compensation, instead choosing to invest more in their business. For example, advisors have not scaled back their service offerings. In fact, 18% of advisors surveyed added new services. The study also showed that advisors are not scaling back when it comes to support compensation or staff. Only 8% of advisors reduced administrative and support compensation and only about 3% conducted staff layoffs.

"A significant part of this growth trend can be credited to advisors being prepared to take action when an opportunity presents itself," says Maya Ivanova, research manager for AdvisorBenchmarking. "Advisors who have learned to leverage opportunity in a tough and unpredictable economy have managed to continue to grow their businesses successfully.

"The main purpose of our annual study is to provide advisors with insights into their marketplace and to give them ideas that ideally will enable them to enhance their business going forward and implement best practices," Ivanova continued. 

While record-high AUM indicates a positive outlook in the near-term, the study also showed that advisors still face hurdles, including:

  • Finding new clients, 79%
  • Government overregulation, 71%
  • Increased investments in technology, 68%

Client acquisition and marketing also remain top areas in which advisors feel they need to improve, according to nearly half, 47%, of survey participants. Although 65% of advisors increased the amount of time spent online communicating with clients, only a quarter, 27%, of advisors actually use social media. The study also showed that the main reason advisors (about 48%) do not use social media is that they are unsure how to navigate the compliance issues.

Despite these concerns, advisors have still managed to effectively navigate market conditions, with net profits increasing 28% in 2009 -- the highest increase in five years.

Some additional survey findings include:

  • As markets improved in 2009, advisors spent less time on client service -- only 10% of their time in 2009 compared with 15% of their time in 2008.
  • Nearly a fourth, 22%, of advisors are offering investment management services to other advisors.
  • To help improve bottom-line performance, investment advisors are looking to improve productivity with outsourcing solutions. The top functions advisors outsource are tax filing, 41%, and bookkeeping, 16%.
  • Overall AUM fees slightly increased to 0.92%.
  • Mutual funds continue to be the preferred investment product in the advisor community, with 34% of advisor assets invested in mutual funds.
  • More advisors were proactive in seeking clients in 2009 -- 21% gained more clients by actively seeking referrals from existing clients, compared with 12% in 2008.
  • Web sites played a bigger role in bringing in new clients in 2009 --17% of advisor clients were attributed to the web.
  • Advisors were more proactive in communication with clients -- 83% communicate to their clients over the phone, 78% use email and 74% use newsletters.
  • Advisors kept account minimums the same as in 2008.
  • Nearly three quarters, 73%, of advisors take action to "fire" clients who are not a good fit. Sixty-four percent of financial professionals do that by having a frank discussion about the client's compatibility with the advisor's business. Twenty-two percent of advisors refer clients to a specific advisor that may be a better fit. Less than one-third, 27%, of advisors surveyed stated that they do not "fire" clients.
  • Revenue increased 16% over the 2008 level.
  • The median profit margin was 19% in 2009, the same as in 2008.
  • In 2009, medium and larger firms demonstrated higher profitability growth compared with smaller firms. Firms with less than $50 million in assets under management had a 16% profit margin compared with a profit margin of 31% and 34% for firms with $200 - $500 million and $500+ million in AUM, respectively.

About the Survey
The 2010 Annual AdvisorBenchmarking study was conducted through online surveys of 427 RIA firms from February through April 2010. The analysis on Rydex|SGI AdvisorBenchmarking is based on the number of completed surveys and reflects only information from these surveys. This information is intended to be general and these overviews are no substitute for professional, legal or consulting advice. This information should not be construed as advice from Rydex|SGI AdvisorBenchmarking, Inc., AdvisorBenchmarking.com, its strategic partners or their affiliates. Rydex|SGI AdvisorBenchmarking.com is a service of Rydex|SGI AdvisorBenchmarking, Inc., an affiliate of Rydex|SGI.

About AdvisorBenchmarking, Inc.
AdvisorBenchmarking, Inc., is a research and analysis center focused on the RIA marketplace. Through its survey web site, www.AdvisorBenchmarking.com, the firm conducts multiple surveys every year of advisors covering a host of business and investment management practices. The findings and analysis of the data are then released to the marketplace in the form of annual studies, quarterly research notes and monthly newsletters. The service is aimed at helping advisors grow and enhance their firms by comparing their businesses to others, highlighting the best practices of the most successful advisors in the business. AdvisorBenchmarking is an affiliate of Rydex|SGI.

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