How to Leverage Benchmarking to Grow Your RIA Firm

How to leverage benchmarking to grow your RIA firm | Elevate CPA Group

Your RIA firm is likely one of your largest and most time-consuming assets. Of course, much of the time you spend on it involves taking care of clients. This leaves little time for checking in on the financial wellbeing of your own business operations. But if you’re not paying attention to your RIA firm’s numbers—and how they stack up against those of similar firms—you could be missing an opportunity.

Here’s how to leverage benchmarking to grow your RIA firm.

First, know your numbers.

At a minimum, you should be tracking and updating your RIA firm’s current and expected cash flows on a consistent basis. Knowing your numbers also means having confidence in the accuracy of your financial statements. Are you able to trust the reports your accounting system provides?

Measure your key performance indicators.

If you know your RIA firm’s numbers, you can consistently measure its key performance indicators (KPIs). Focus on the ones that are most important to your firm. These might include:

  • Average client age
  • Average number of years clients have been with your firm
  • Average number of new clients your firm adds each year
  • Percentage of AUM from your firm’s top five client relationships or families, excluding institutional clients

Compare your KPIs to those belonging to similar RIA firms.

Comparing your RIA firm’s KPIs to the KPIs of other similar firms lets you see how your firm stacks up against its peers. At Elevate, we leverage a tool from Truelytics, the leading SAAS business intelligence platform for wealth management enterprises, to help you benchmark your firm in this manner. This unique tool can also uncover valuable data about your business. The result: You get a “business health record” you can apply to your practice management.

Pinpoint areas of improvement.

Once you’ve benchmarked your RIA firm against its peers, you can identify KPIs to improve upon. Doing so can help you ask the right questions and ultimately increase your bottom line and overall firm value. For example, if the industry average of revenue per employee for similarly sized RIA firms is $85,000, and your firm is at $45,000 per employee, the question becomes: Do you have too many employees?

Knowing how your RIA firm stacks up also allow you to evaluate its revenue and expenses. For example: What is the average basis point you’re charging for your advisory services? What percentage of your revenue is recurring (i.e., reliable) each year? Excluding acquisitions, what is your estimated future annual revenue growth rate?

For expenses, consider reviewing significant purchases as well as costs such as rent, legal services, and marketing to see how these compare to what similar RIA firms are paying.

Set goals for growth.

Knowing how your RIA firm compares to others gives you an idea of where your KPIs should be. This perspective gives you something to measure against while also serving as a blueprint for growth. The more you can strengthen your RIA firm’s KPIs and cash flow, the more valuable your firm will be—today and tomorrow.

At Elevate, we combine the power of technology with data analytics to help you better understand and grow your RIA firm. As our client, you have access to the Truelytics tool referenced in this blog post as a value-add to our CPA services. To find out how we can help you leverage benchmarking to your RIA firm’s advantage, contact us today.