Strategies of top-performing firms can help RIAs thrive

Early in 2020, life as we all knew it was suddenly disrupted. Registered Investment Advisors needed to adapt quickly to a changing environment and clients’ evolving needs. The enduring strength of RIA firms has reinforced a basic fact: Forward thinking can help firms thrive and grow, even in uncertain times. Whatever the future may hold, insights from Schwab’s 2020 RIA Benchmarking Study — including the strategies of top-performing firms — can help RIAs position themselves for success.  

While the 2020 study was conducted from January through early April, more than three-quarters of the 1,010 participants submitted their data after March 1, when markets had already been heavily impacted by the crisis, volatility was high, and many were sheltering in place. Even as firms navigated this changing environment, growth was still top of mind: Firms ranked acquiring clients as their top strategic initiatives. 

In talking with advisors, I am often asked, “What are the best-performing firms doing?” To help answer this, we introduced the Firm Performance Index, based on a rigorous methodology, to help RIA Benchmarking Study participants assess the strength of their businesses. By looking at 15 key metrics, the index identifies firms with significant growth that are operating effectively across all areas. Top-performing firms are those that rank in the top 20% of the index. Firms of all sizes are represented in this cohort, but they operate in similar ways. The following snapshot highlights key practices that have helped top-performing firms succeed.

Firms benefit by planning growth strategically. How can a firm be prepared for almost anything?

Maintain a written strategic plan. A long-term plan, rooted in purpose and values, helps firms respond to change and pivot when necessary. Three out of four top-performing firms have a written plan, versus 54% of all other firms. This is an area where I strongly encourage firms to dedicate time as 2020 comes to a close. Sitting down with firm leaders, realigning around a strategic plan, and identifying a set of priorities for 2021 will help firms move with intention past this year of unprecedented challenges.

Focus on organic growth. Organic growth is a key metric all firms should track. By removing investment performance from growth numbers, firms can better understand how well their value proposition, client experience, and strategy resonate in the marketplace. Top-performing firms brought on 29 new clients at the median, compared with 19 for all other firms. The new clients drove significant assets, as top-performing firms saw twice the asset growth from new clients in 2019 as other firms — 8.3% versus 4.1%. The study found top performers leverage client referrals, business partner relationships, and marketing to drive growth.

The client experience is key to growth. How can firms design a client experience to attract and retain clients?

Identify the ideal client and what they value. Who are the people considered a “best fit” for the firm? Firms with both a documented ideal client persona (ICP) and client value proposition (CVP) attracted more new clients and new client assets in 2019. A larger percentage of top-performing firms — 68% — have a written ICP, versus 54% of all other firms. Similarly, 75% of top performers have a documented CVP, versus 59% of other firms. These tools can help inform business decisions, such as how to communicate with clients, what services to offer, and what technology to adopt. The best businesses and brands are clear on whom they are trying to serve, and the more we study what sets outperformers apart, the more convinced I become that this is one of the biggest differentiators. 

Understand clients and their needs. About 70% of all firms leveraged one-on-one interviews to obtain insights about their clients, and about 60% conducted interviews with clients who make referrals. Slightly more top-performing firms used these methods. Feedback can improve retention: Firms that do regular client interviews saw lower attrition of 2.9% at the median, compared with 3.6% for firms that do not conduct interviews regularly. If a firm is concerned about attrition, conducting interviews with a consistent set of thoughtful questions can illuminate opportunities and may sometimes naturally open the door to a conversation about referrals.

Operational readiness benefits the bottom line. Are there opportunities to streamline operations? 

Evaluate productivity to create more time for clients. Firms have enhanced productivity, with each professional managing 53 clients in 2019 at the median versus 48 in 2015. To do this, firms decreased time spent per client on operations annually to 17 hours in 2019, down from 19 hours in 2015. This has enabled firms to spend the same amount of time on client service. Top-performing firms have demonstrated even more efficiency, also managing 53 clients per professional but spending only 13 hours per client on operations and administration annually

Leverage digital touchpoints to engage with clients. In 2020, with many people required to be home, technology helped firms stay in touch with clients and continue serving them well. The study found a majority of firms are using:

• Electronic/digital signatures for custodian forms
• Virtual client meetings
• Screen sharing/co-browsing
• Digital forms

A higher percentage of top-performing firms reported using these digital touchpoints, positioning them extremely well for the virtual environment we find ourselves in today. In fact, top-performing firms’ operational efficiency may result at least in part from their embrace of technology. Use of such tools will continue even as concerns about in-person interactions recede, because digital channels tend to be more cost-effective and secure and can provide a better client experience.

Times of uncertainty can elevate an RIA’s role in a client’s life, as concerned investors reach out for guidance and support. The current environment is an opportunity for advisors to demonstrate the value they can offer clients beyond their expertise. Designing the client experience thoughtfully and intentionally can help drive success while ensuring firms exceed clients’ expectations. 

Lisa Salvi is vice president of business consulting and education at Schwab Advisor Services.