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RIAs Had Record Client Growth in 2017 But Margins Dropped

By Alex Padalka August 3, 2018

The RIA space had a record year in terms of client growth, but it came at the cost of falling profit margins, according to a recent study from TD Ameritrade Institutional.

Last year’s median annual client growth reached a new record of 7.8%, according to a survey of 321 independent RIAs that have been in business for at least one year, have a minimum of $150,000 in annual gross revenue and whose primary clients are individuals or households.

Median assets under management per client, meanwhile, rose 6.8% to nearly $1 million, according to TD Ameritrade. Firm assets under management jumped 19.9% in 2017, compared to 12.5% in 2016, and revenue grew by 15.8%, which was double the growth rate in 2016, the survey found.

TD Ameritrade attributes the growth not only to rising financial markets last year, but also to a record number of clients bringing new investable assets.

To meet that new demand, many firms have had to bring on new staff, the survey found. Headcount at a typical firm grew from five to six full-time employees, according to TD Ameritrade. And after a decline in 2016, revenue per team member rose 12% to a record high, according to the survey. Firms also appear to have made more investments last year than in previous years in office space, marketing, technology and business development, TD Ameritrade says.

“Advisors reported spectacular growth in 2017, but I’m especially pleased to see that many firms used some of these gains to improve their operations with an eye to increasing revenue and profitability for the long term,” Vanessa Oligino, director, business performance solutions at TD Ameritrade Institutional, says in a press release accompanying the study. “Though they may have proceeded cautiously in prior years, many firms saw 2017 as an opportunity to invest in themselves.”

However, that rise in overhead, combined with increased compensation, helped pull down profit margins, according to the survey. Median operating margin dropped from 24.4% in 2016 to 19.7% in 2017, TD Ameritrade found.