New Study Finds Registered Investment Advisors Enjoying Higher Revenue, But Growth May Be Vulnerable to Market Changes

October 2, 2018

JERSEY CITY, N.J. — The 2018 Study of Pricing & Profitability, which is conducted by InvestmentNews and sponsored by BNY Mellon’s Pershing Advisor Solutions, indicates that registered investment advisor (RIA) revenues have improved compared to 2015—the last time this same study was conducted.

However, the study—which includes responses from 385 advisory firms—also reveals that assets under management (AUM) growth is predominantly driven by market performance. Further, even as firms have gone on a hiring spree, they have yet to realize meaningful productivity gains from new hires.

“That the main growth driver for RIAs is the overall performance of the market should be a flag for our profession,” said Gabriel Garcia, managing director and head of relationship management at BNY Mellon’s Pershing Advisor Solutions. “With the economy still running high, now is the time for firms to take a critical look at their business and identify areas of investment and improvement.”

“First and foremost, firms have to find ways to maximize their investments in new hires. Training is critical in that respect. Further, firms need to increase their focus on developing marketing and client experience strategies to help differentiate themselves in a demanding economy and increasingly competitive marketplace,” added Garcia.

Pointing to intensifying competition in the marketplace, the study reveals that the distance in performance between the largest and smallest firms is increasing, with the average-size firm reaching $4 million in revenue and the largest firms—which average more than $18 million in revenue—driving more than four times the revenue of the average firm.

“Conversation around succession and consolidation in the industry has been going on for more than a decade,” continued Garcia. “But after several years of consistent growth and profitability, we are now seeing unprecedented levels of capital flow into the industry, dramatically increasing the financing options available to advisors. For firms looking to position themselves for long-term growth, there’s hardly been a better time to put in place the measures that will help gain market share and build a resilient business that will withstand market cycles.”

Among the study’s findings:

  • RIA revenues have rebounded. The median revenue growth in this year’s study was 12 percent, up from 7 percent seen in the 2015 study. Meanwhile, operating profit margins have remained consistent at 25 percent. In fact, profit margins have remained pretty steady over the past four years, fluctuating mildly between 24-25 percent.
  • 2017 was the year of the super-ensemble firm. Super-ensembles—professionally managed firms with $10M+ in revenue—outpaced all other sized firms with a median revenue growth of 13 percent in 2017. Solo practitioners, on the other hand, recorded less than half of the revenues of super-ensembles at 6 percent, underscoring the increasingly divergent paths for large and small RIAs in a rapidly maturing industry.
  • AUM growth was mostly fueled by market performance rather than referrals or business development. Of the 19 percent increase in AUM across firms, market performance made up almost half of the growth at 8 percent. Meanwhile, business development efforts contributed to 5 percent of the AUM growth in 2017—up from 2.5 percent in 2016.
  • Firms are hiring to build capacity, yet productivity remains stagnant. Nearly half of all firms (49 percent) responding to this year’s Study of Pricing & Profitability hired support advisors, a significant increase compared to the 14 percent in the 2017 InvestmentNews Compensation & Staffing study. Similarly, there was an increase in the number of firms hiring service advisors (20 percent, compared to 11 percent in the 2017 study). As firms have ramped up hiring to build capacity, average revenue per professional has remained stagnant at $440,000, compared to $442,000 in 2015.

About The 2018 Study of Pricing & Profitability

The survey was conducted between March 27, 2018 and June 25, 2018. The data collected was analyzed and assessed by the teams at InvestmentNews Research and The Ensemble Practice. In total, qualified data was used from 385 independent advisory firms who supplied detailed financial information for their organizations, including data on clients, AUM, revenue, profit and loss statement, growth strategy, marketing, fees, staffing and recruiting, as well as compensation information for newly hired or promoted staff members.

About BNY Mellon's Pershing

BNY Mellon’s Pershing and its affiliates provide advisors, broker-dealers, family offices, hedge fund and ’40 Act fund managers, registered investment advisor firms and wealth managers with a broad suite of global financial business solutions. Many of the world’s most sophisticated and successful financial services firms rely on Pershing for clearing and custody, investment and retirement solutions, technology, enterprise data management, trading services, prime brokerage and business consulting.

Pershing helps clients improve profitability and drive growth, create capacity and efficiency, attract and retain talent, and manage risk and regulation. With a network of 23 offices worldwide, Pershing provides business-to-business solutions to clients representing more than 6 million investor accounts globally. Pershing LLC (member FINRA, NYSE, SIPC) is a BNY Mellon company. Additional information is available on pershing.com, or follow us on Twitter @Pershing.

About BNY Mellon’s Pershing Advisor Solutions

BNY Mellon’s Pershing Advisor Solutions is a leading provider of business management, execution and financing and custody solutions serving professionally managed, growth-oriented advisory, wealth management and institutional providers serving clients with complex financial lives.

Pershing Advisor solutions is a true business-to-business provider offering cutting-edge solutions—from private banking to alternative investments to global capabilities—to help clients to run their business more efficiently and service clients more effectively. Pershing Advisor Solutions LLC, member FINRA, SIPC, is a wholly owned subsidiary of The Bank of New York Mellon Corporation (BNY Mellon). To learn more, visit us online or connect with us on LinkedIn or Twitter.

About BNY Mellon

BNY Mellon is a global investments company dedicated to helping its clients manage and service their financial assets throughout the investment lifecycle. Whether providing financial services for institutions, corporations or individual investors, BNY Mellon delivers informed investment management and investment services in 35 countries. As of September 30, 2018, BNY Mellon had $34.5 trillion in assets under custody and/or administration, and $1.8 trillion in assets under management.

BNY Mellon can act as a single point of contact for clients looking to create, trade, hold, manage, service, distribute or restructure investments. BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation (NYSE: BK). Additional information is available on www.bnymellon.com. Follow us on Twitter @BNYMellon or visit our newsroom at www.bnymellon.com/newsroom for the latest company news.

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