Data from a new report reveals an encouraging insight for advisors looking to grow their clientele
Given the financial advice industry’s traditional and widespread reliance on AUM-based compensation, it might be hard to imagine that revenue could increase as managed asset levels decline. But that’s exactly the situation uncovered by a new study from PriceMetrix.
In its eighth annual “State of Retail Wealth Management” report, based on data from more than 25 North American wealth management firms, PriceMetrix found that the median amount of managed assets per financial advisor fell in 2018. In spite of that, revenue still climbed to a record high.
The report found that the concomitant rises in assets and revenue that advisors saw before 2018 were mainly due to market performance. With the 6.2% drop suffered by the S&P 500 last year, the median amount of managed assets per advisor dropped by 7%.
In spite of that, the median revenue per advisor rose by 6% to reach US$694,000. Advisors overcame the challenge of declining assets by fostering relationships with new clients, increasing services for current ones, and reaching out to “next gen” clients.
“In the past several years, we’ve seen revenue go up, but it’s largely been a market performance backdrop. Often in this industry, that works to everyone’s advantage,” Patrick Kennedy, PriceMetrix’s chief customer officer, said in an interview with WealthManagement.com. “But if that’s driving your growth, in the absence of market performance you need to make sure the fundamentals are there as well.”
According to the report, advisors started 8.1 new household relationships on average in 2018, in contrast to 7.6 in 2017. It also found that the proportion of households with multiple accounts, the median number of accounts per household, and the percentage of households with retirement accounts all reached record levels in 2018, indicating that advisors stepped up their efforts to strengthen existing partnerships with clients.
A 5% increase in the proportion of wealth-management clients born after 1965 — from 16% in 2015 to 21% in 2018 — also suggests a greater appreciation for such younger clients. The average assets for that cohort also grew 6.1% over the three-year period, whereas average assets for those born before 1965 grew by a more modest 3.5%.
The new data also suggest that advisors who have not engaged with younger clients are falling behind. When comparing rates of annual growth, advisors with a higher percentage of younger clients saw a greater increase than those with the lowest number of such clients.
“There’s a misconception among advisors that if you’re going to target next gen clients, it’s coming at the expense of revenue today,” Kennedy said. “What we’re seeing is advisors who are overweighted in next gen clients growing at a 50% faster rate.”
Another key finding showed the continued shift toward fee-based pricing. Revenue growth of 17% in fee-based accounts between 2017 and 2018 added to a multi-year upward trend, while revenue from transactional accounts dipped by 5%.
From 2015 to 2018, there was an increase in both the share of households with at least one fee-based account (from 31% to 52%) and the percentage of AUM in fee-based assets (from 33% to 47%). The report also found that the rate of decline in fee rates for financial advice has moderated after the sharper drops seen in previous years.