The RIA business has evolved significantly over the past decade. Many important influences are re-shaping the advisory business, even beyond the industry's response to the recent recession. Advisors are finding new ways to increase efficiency, spend more time with clients and address investment challenges through a broader product mix, though they still face challenges in strategy development and business management. This article is the first in a two-part series that explores key evolutionary trends of the past decade, based on historical data from one of the industry's longest-running advisor surveys.
As we have examined financial results over the last year, we have observed the toll that the economic downturn has taken on advisory firms. Revenues and assets are down from 2007 highs, and many firms responded with significant cutbacks. Layoffs were a first line of defense for firm profitability in 2008. Then in 2009, with staffing levels already cut back, 31% of firms resorted to reducing principals' compensation in order to stabilize firm finances. 
In addition, 2009 saw a slight shift from strategic to tactical management of client portfolios, as advisors tried to cope with extreme market volatility and a very uncertain economic climate.
Broadening the Product and Service Mix
But even as RIA firms were dealing with near-term market dislocations, other longer-term trends were continuing to take shape, some of which are helping build and sustain advisors' businesses.
For several years, advisors have been diversifying away from traditional mutual fund choices (Exhibit 1). In their place, we have seen steady growth in the use of ETFs, alternative-style mutual funds and alternative assets. In 2008, we also saw a spike in the use of money market funds, as advisors parked clients' money in cash–a trend that nearly fully reversed in 2009.
What these trends suggest, especially in light of the shift toward tactical investing, is that advisors are searching for new solutions to address market volatility, risk, and cost. ETFs and alternative-style mutual funds can offer lower investment cost compared to traditional products. They may also improve liquidity and flexibility to support a more opportunistic approach to investing.
We have also identified a steady trend in advisors' service mix over the past seven years. It appears as though advisors are honing their offering to leverage their core skill set and add value for clients. For example, tax planning dropped precipitously and is now only offered by a very small minority of advisors. At the same time, financial planning and charitable planning have steadily increased year after year.
There could be any number of reasons for this shift. Early on in the history of the RIA industry, advisors came from a wide range of backgrounds, including tax and accountancy. That mix has changed over the years as breakaway advisors have driven growth in the profession. It could reflect a shift toward outsourcing specialized work (e.g., tax), or creating referral relationships with other professionals. The increase in high-touch planning services could reflect a changing client mix, one in which wealthy clients are increasingly a primary or ideal target.
But the result is more important than the cause: As the industry grows, and the trend toward independence continues, the "table stakes" for successful advisory firms will likely include a range of value-added planning services.
A Changing Revenue Mix
As the product and service mix has been changing over the years, so, too, has the revenue mix for the average firm. Asset-based fees have been the predominant source of revenue for the past decade, but there has been a slow, steady shift toward a more diversified revenue mix, particularly in the latter half of the last decade. 
AUM-based fees consistently declined as a share of revenue. Planning and consulting fees increased steadily before shrinking significantly last year with commissions showing a sudden rise just in the past two years. And as the mix diversified, average fees trended downward for several years before showing a slight uptick in the 2006-2007 period, and then another decline in 2008-2009 to 92 basis points.
