Unlocking Real Value Blog

Wealth Management Trends – The Good, The Bad & The Ugly

2013 was a mixed year for the retail wealth management business, with positive highlights – such as increases in assets under management, revenues and production – hiding some disturbing underlying trends. The results provide a good baseline for individual advisors, advisor groups and their firms to evaluate their businesses and plan accordingly for the future.

(The study being referenced is PriceMetrix’s Fourth Annual State of Retail Wealth Management Report. I give a lot of credence to these reports because of the firm’s reputation as well as the size of its database, which encompasses 40,000 advisors. seven million retail investors, 500 million individual transactions and $3.5 trillion in investment assets.)

First, the good headlines news – assets under management increased 12% for the average financial advisor last year and average production grew 5%. Average household revenue increased 11%. These gains signal the continuation of an uptrend in these categories that has been in place since 2009. The average financial advisor managed $90.2 million  and had revenue of $578,000 last year. Average household revenue was $3,670 per household.

But given that the market was up close to 30%, is this growth really that impressive? Here comes the bad news! Much of the growth came from market appreciation rather than growth in new clients. In fact, 6% of the growth came from existing clients and only 5% from new clients. Client retention dropped as well, with departing clients providing a 5% negative drag on growth. The average client retention rate decreased 2% to 90% in 2013, deteriorating in every size of household category. This statistic counters the often heard argument that advisors are only getting rid of smaller less profitable clients. (Bigger households actually left at a fast pace than smaller households.)

Wait – it gets worse.  Average return on assets (ROA) dropped for the second year in a row, down to 0.68% from 0.72% in 2011. While part of this was due to the continuing trend of advisor’s increasing the percentage of fee-based business in their overall businesses, advisors need to grow assets faster if they are going to transaction to lower margin business. And the average age of clients is older for the second year in a row, growing faster than the overall North American population.

The overall results of the survey were well summarized by Doug Trott, President and CEO of PriceMetrix: “Advisors and their firms have a lot to consider. A key challenge, however, remains how to create, articulate and deliver a value proposition that helps to attract and keep desirable wealth management clients. Another challenge is how to create a sustainable book that is not overly reliant on aging clients.”

Growth is only good if it is the right growth.

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