Unlocking Real Value Blog

Advisors: More Fee-Based Business = More Success

PriceMetrix released a new report today that found that advisors moving clients more aggressively into fee-based accounts saw revenue growth of 47% over the past three years compared to an average growth rate of 21%; these advisors also had above-average growth in assets under management as well as return on assets.

(PriceMetrix is a well-respected practice management solution provider. The validity of the report partially rests on the size of the study, which represented data covering 3.2 million investors, 500 million transactions, 1 million fee-based accounts, 4 million transactional accounts and over $900 billion in assets as of May 2012.)

Some other results from the study which support fee-based accounts include:

  • The average fee-based account is 46% larger than the average transactional account;
  • The average fee-based account generates three times as much revenue – $2,900 per account v. $870; and
  • Households with at least one fee-based account generate a return on assets that is 40% -70% higher than households that are purely transactional.

There is a lot more in this study, but for now it suffices to say that advisors who have been considering the move into fee-based business should take note. For years, there has been a debate in the industry less about “if,” but more about “how fast” an advisor should convert this/her book (or at least a portion of it), from transactional business to fee-based business, recognizing that your income may initially go down.

The flip side is that while this reduction in income phenomenon may be true in the short-run, switching your business mix toward fee-based business will leverage your time, thus allowing more time to grow your business while also giving the peace of mind that on January 1st of each year you have already “guaranteed” a large portion of your income with more sticky assets.

A final statistic about the subset of advisors who grew their fee-based business by at least 25% during the three-year period studied: the average advisor in this group saw a 49% increase in assets under management and a 41% increase in recurring revenue. They also almost doubled the number of households in their book which generated more than $5,000 or more in revenue each year while significantly reducing those clients that generated less than $500.

Definitely some food for thought! The question on advisors minds should not be if they should convert part of their book, but how fast!


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