While the wealth management industry remained challenged in 2010, the majority of financial advisors are optimistic about 2011, according to a new report from Aite Group.

The report, released Tuesday, examines business trends in the advisor community based on a survey of over 430 U.S. financial advisors during the first quarter of 2011.

Following the “flash crash” in May 2010, when the Dow Jones Industrial Average tumbled roughly 900 points, retail investors hit a wall of worry and trading volumes and revenue at wealth management firms took a hit for the rest of the year.

The Aite Group report found that 2010 performance varied across the wealth management industry sub-segments, with wirehouse firm assets remaining 8% below their 2007 highs and independent RIAs, online brokerages and other self-clearing retail brokerage firms outside the wirehouse space beating their end-of-2007 asset levels by 21% and 16%, respectively.

Yet there is still a lot to be concerned about it 2011, with the U.S. debt crisis and turmoil in several Western countries, which took a bite out of asset growth at wealth management firms in the second quarter.

“Q2 2011 is yet another time characterized by low trading volumes, and firms like UBS, Credit Suisse, and Bank of America Merrill Lynch are already rethinking their current staffing levels,” said Alois Pirker, research director with Aite Group and co-author of the report, in a press release. “Overall, the path to recovery remains lengthy and littered with many challenges for wealth management firms.”

Online brokerage firms outpaced all the other segments by a long shot in 2009 and 2010, with client assets growing by 50% between end of 2008 and end of 2010, as mass affluent clients were pushed out of many wealth management firms in order to focus on higher-net-worth individuals.

“Financial advisors and online brokerage firms are banking on fee-based investment solutions to achieve more impressive growth in 2011 and beyond,” said Sophie Schmitt, senior analyst with Aite Group and co-author of the report. “The verdict is not yet out on whether investors will embrace this investment management approach as many investors remain cautious in a volatile and uncertain economic environment.”

Market share winners in 2010 include online brokers, with a gain of 3% market share since 2008, independent RIAs, networks and leading regional brokerages.

Financial advisors surveyed in Aite Group’s first quarter 2011 survey reported a 13% improvement in revenue in 2010, up from 1.4% in the fourth quarter of 2009. Advisors with the strongest growth were independent RIAs, followed closely by bank, wirehouse, and other self-clearing brokers, according to the report.

In 2011, financial advisors are reporting being even more optimistic about their business, with expectations of 19% in revenue growth.

Financial advisors from other self-clearing firms, such as LPL and Edward Jones, are the most bullish about growth in 2011, expecting to double their 2010 revenue growth in 2011, with an expected growth of 27%.

Aite Group pointed out that one of the biggest changes over the last two years is the decline in the number of commission-only financial advisors and the growth in fee-and-commission-based advisors, with the percentage of commission-only advisors tumbling 40% between late 2009 and early 2011. Fee-based investment solutions are the name of the game when it comes to revenue growth for financial advisors and online brokerage firms in 2011.

“Whether investors will embrace this investment management approach remains to be seen, however, as many investors are still cautious with their investments in a volatile and uncertain economic environment,” the report said.