TD Ameritrade Institutional Finds Billion-Dollar Standout RIAs Outperform by Investing in Themselves
TD Ameritrade found that large standout RIAs scrutinize their technology spending and focus on generating high returns on their investment.
If you’ve ever wondered how some registered investment advisor (RIA)
firms outperform their peers as they amass new clients and assets, it
boils down to this: they are investing in people, technology and
acquisitions to generate growth and sustain that growth for years to
come.
TD Ameritrade Institutional1 set out to explore whether there
were best practices and characteristics correlated with the largest,
highest-performing firms. The review focused on "large standout firms,"
those generating at least $4 million a year in revenue as well as
top-quartile revenue growth and profit margins. These firms generally
manage more than $1 billion in client assets.
Among other things, the top-tier firms are more active acquirers:
according to a TD Ameritrade Institutional analysis of data gathered for
the annual FA Insight Study of Advisory Firms, 80 percent of
large, standout advisory firms have initiated an acquisition in the past
five years, compared with 47 percent of other large firms.2
Many of these acquirers, meanwhile, completed more than one deal during
this period.
The analysis also found that large standouts are adding human capital at
a much higher rate to fuel and sustain future growth, increasing
full-time employees by 12 percent between 2016 and 2018. That’s more
than three times the 3.5 percent headcount increase reported at other,
lower-performing large firms.
The FA Insight data show that large standout RIAs generate higher
productivity and profitability. These firms generate a 75.5 percent
gross profit margin, versus 63 percent among other firms, which measures
gross revenue less all direct expenses divided by gross revenue. Gross
margin reflects the efficiency of a firm’s revenue generator, including
client mix, product mix and service mix.
Top-performers, the analysis shows, are more efficient converting effort
into revenue and generate more revenue per revenue-producing employee.
One key driver of outperformance: large standouts are more likely to tie
employee compensation to how individuals help the firm meet its
strategic goals.
Large standouts also collect more revenue on every dollar managed, 84
basis points compared with 74 basis points among other large firms, and
they’re more likely to collect a minimum fee: 50 percent of standouts
compared with 44 percent among the rest of the pack.
These findings were shared as more than 200 leaders from the industry’s
largest independent registered investment advisor (RIA) firms gathered
at TD Ameritrade Institutional’s annual Elite LINC 2019 conference. For
an infographic illustrating some highlight findings, visit https://www.amtd.com/files/doc_news/research/2019/standout-advisory-firms.pdf.
“The data reinforce what we’ve long believed to be best practices:
well-managed firms are investing in themselves, their people and
platforms to build a foundation for a larger, more scalable and
successful future,” said Vanessa Oligino, Director of Business
Performance Solutions at TD Ameritrade Institutional.
Rigorous planning and analysis may also contribute to better results. TD
Ameritrade found that large standout RIAs scrutinize their technology
spending and focus on generating high returns on their investment.
When it comes to technology, the top performers are more likely to adopt
tools that can increase efficiency and deliver a better client
experience, including financial planning software, digital document
management systems and online client portals.
“Standout performance is the product of sound strategic planning, an
intense focus on operations,” Oligino said. “And, just as important,
top-tier firms show they have the discipline to follow through on those
plans over time, through thick and thin.”
To learn more about what TD Ameritrade Institutional can do to help
large standout RIA firms, advisors can call 800-934-6124 or visit www.tdai.com.
TD Ameritrade Institutional will produce a more comprehensive collection
of data and insights through its first-ever large standout advisor index
in the near future. Learn more about FA Insight research at www.fainsight.com
1. TD Ameritrade Institutional is a division of TD Ameritrade, Inc.,
member FINRA/SIPC, a brokerage subsidiary of TD Ameritrade Holding
Corporation.
2. TD Ameritrade analysis of data collected from The
FA Insight Study of Advisory Firms, 2017 and 2018, www.fainsight.com.
FA Insight is a product of TD Ameritrade Institutional, Division of TD
Ameritrade Inc. FA Insight is a trademark owned by TD Ameritrade IP
Company, Inc.
About TD Ameritrade Holding Corporation
TD Ameritrade
provides investing
services and education to
more than 11 million client accounts totaling approximately $1.3
trillion in assets, and custodial
services to more than 7,000 registered investment advisors. We are a
leader in U.S. retail trading, executing an average of approximately
850,000 trades per day for our clients, more than a quarter of which
come from mobile devices. We have a proud history
of innovation, dating back to our start in 1975, and today our team
of 10,000-strong is committed to carrying it forward. Together, we are
leveraging the latest in cutting edge technologies and one-on-one client
care to transform lives, and investing, for the better. Learn more by
visiting TD Ameritrade’s newsroom at www.amtd.com,
or read our stories at Fresh
Accounts.
About TD Ameritrade Institutional
TD
Ameritrade Institutional empowers more than 7,000 independent
registered investment advisors to transform the lives of their clients.
It provides powerful technology and resources that help simplify running
a business and let advisors spend more time doing what matters most —
serving their clients. Through meaningful innovation, steadfast advocacy
and unwavering service, TD Ameritrade Institutional supports RIAs as
they build businesses that positively impact their clients and
communities. TD Ameritrade Institutional is a division of TD Ameritrade,
Inc., member FINRA/SIPC, a brokerage subsidiary of TD Ameritrade Holding
Corp.
Brokerage services provided by TD Ameritrade, Inc., member FINRA (www.FINRA.org)
/ SIPC (www.SIPC.org).
Source: TD Ameritrade Holding Corporation
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