Charles Schwab's 2013 RIA Benchmarking Study found that the top 20% of a 1,025 firm sample set were able to generate three to five times as many referrals from clients and "centers of influence" than the rest of their peers.
"That's the differentiating factor," explains Jon Beatty, Schwab Advisor Services' senior VP for sales and relationship management. "We call it relationship marketing -- these advisors have achieved a level of relationships [with clients and business partners] where the community is promoting on their behalf."
"We knew for a long time that advisors grow through referrals," he adds. "But this [study] was the first time we saw such a divergence between the fastest growers and the rest of the firms." That split was constant regardless of firm size, according to the study, published in July of 2013.
Among firms with $250 million to $500 million, the top 20% saw 8.6% of net asset flows from new clients come from referrals, while the rest of the group got just 3.1% from referrals. For firms with more than $500 million, the referral numbers were even higher: The top 20% got more than 11% of net asset flows from new clients from referrals, vs. 3.6% or 3.7% for the rest of the firms.
The report also found that firms with at least $1 billion in assets had 51% greater per client revenue than firms managing $250 million to $500 million, and operated at a 25% greater margin. Those larger firms also managed 71% more assets per professional than their smaller counterparts.
The economies of scale relate largely to technology use, Beatty says. With better technology implementation, firms "can manage more clients per professional," he explains. "Your client relationship people spend less time hunting for client data, and they can become more efficient and responsive."
Overall, the new Schwab report -- which focuses on firms with more than $250 million in AUM -- shows an industry in growth mode. (The study tracks data from participating RIA firms that custody assets with Schwab, offering firms a customized comparison with peers in return for their participation.)
These findings represent good news for advisory firms that use StockOpter.com to generate corporate executive referrals by providing a technology platform for the efficient delivery of equity compensation diversification assistance. For additional information on using StockOpter.com to generate referrals read the blog article entitle The 5 Reasons Clients Don't Refer.