Advisory firm AUM growth hits multiyear low: Charles Schwab study

Assets under management (AUM) growth at financial advisory firms hit a multiyear low in 2022, according to Charles Schwab's 2023 RIA Benchmarking Study.

Out of the 1,300 firms included in the study, top-performing firms — those that rank in the top 20% of Schwab's Firm Performance Index — had no AUM growth last year, down 28 percentage points from the year before. Other firms were even worse off, with minus 9% AUM growth in that same span.

Last year marked Wall Street's worst year since 2008, with the S&P down nearly 20% and the Nasdaq diving 33% by year end.

2022 was the worst year in AUM growth for firms since at least 2018, the earliest year of data included in the 2023 study. Because the cohort of firms included in Schwab's study changes from year to year, comparing such metrics across multiple study years is not advisable, according to Lisa Salvi, managing director of advisor services at Charles Schwab.

Despite overall declines in growth, Salvi said that top-performing firms did a "remarkable job" of navigating such a negative economic environment.

"The fact that AUM was flat year over year among top-performing firms is strong testament to their ability to adapt and draw in billions of net new fee-generating assets; enough to offset the negative market environment," said Wally Okby, strategic advisor at Datos Insights (previously Aite-Novarica).

Despite the downturn, client retention remained consistent at 97%, according to the study.

"You might have the same number of clients in the same accounts, but it's going to look usually a little bit lower because there weren't a lot of great places in the market to be," Salvi said. "When you think of how many clients these firms are serving, and how much more communication tends to happen during periods of market volatility, that doesn't leave as much time for prospecting, marketing strategies, seminars and closing new business. So, I think they're doing a pretty good job in that scenario of balancing it out."

For the bottom 80% of firms in Schwab's study, finding that balance was a challenge. While top-performing firms saw net assets from existing clients — excluding investment performance — decline 13% year over year, other firms with over $250 million in assets saw their net assets cut by half.

"RIAs need to redouble their efforts to spend less time on administrative/non-revenue-generating activities and more time adding value" through new client acquisition and revenue-generating activities, Okby said. "Wealth managers at firms that constantly manage and enhance their digital engagement, digital communication, client reporting, customer relationship management and financial planning platforms, etc., typically outperform their peers."

Top-performing firms reported greater rates of digital integration and standardized workflows than other firms, allowing them to spend around 20% less time annually per client on operations and about 10% more time per client on client service, according to the study.

With markets having largely recovered from last year's decline, some advisors say it is back to business as usual.

"Priorities have not changed, and now with prices bouncing back and continued new asset growth in 2023, [declines are] not a current concern," said Ryan Salah, financial advisor at Capital Financial Partners in Towson, Maryland.

Still, experts say that last year's impact has some lasting lessons to offer firms.

"Those firms that invested smartly to build and modernize their front-to-back technology capabilities have clearly resulted in enhanced digital client engagement," said Okby. "These investments will put them in a better position to weather market volatility than technological laggards."