Posts Tagged ‘PriceMetrix’

Characteristics of High Net Worth Clients

Wednesday, May 8th, 2013

PriceMetrix just released a report on the characteristics of high net worth clients (defined by them as people having a net worth of at least $2 million). There are a few very interesting pieces of information that advisors should consider in their ongoing planning processes.

(The breadth of the client database at PriceMetrix – 7 million retail investors and 500 million transactions – always gives me confidence in the validity of their reports.)

1) The most interesting aspect of this report to me is that the study found that just 3% of households with less than $500,000 when a relationship began, became high net worth clients over the subsequent five years. I can’t say it any better than the Doug Trott, the CEO of PriceMetrix: “The number of times small households become high net worth clients is simply too few to merit an advisor’s attention. Advisors should concentrate on finding, not manufacturing big clients. Seventy five percent of high net worth clients were high net worth from the very beginning of their relationship with their advisor.”

Other than family relationships, where you are trying to cultivate future relationships, I agree that it makes little sense to target smaller investors with the hope that they will become larger. Advisors should consider raising their account minimums if they have been targeting prospects with lower net worths.

2) The study confirmed that high net worth investors tend to spread their investments among account types and advisors. This argues for advisors adopting a business model where they accept this fact, and rather than try to convince clients to consolidate their assets with them (at least initially), they develop the ability to be the primary advisor – the one who can provide complete account performance (even for assets held away) and multiple services so that they can be the “go to” person.

3) While high net worth clients typically pay lower fees, the range of fees found was significant account to dispel the rumor that fees drive relationships. To quote Mr. Trott again: “They (advisors) shouldn’t deeply discount their prices because it won’t help and they should limit their number of small households because large numbers will impair their ability to appropriately service high net worth clients.”

4) Finally, the study validated the well known fact that high net worth clients tend to have more in fee-based accounts and migrate away from mutual funds as their net worth grows. Fifty one percent of high net worth clients have fee-based accounts, while only 36% of households with between $250,000 and $500,000 in assets have fee-based accounts.

Some good information to help advisors plan for the future.

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What Are Top Advisors Doing?

Wednesday, March 13th, 2013

While every advisor has his/her own unique business, there are common traits to be found among the most successful advisors that can be used as a helpful guide for all advisors. The most recent source of useful information in this regard is the always reliable PriceMetrix Inc., which just released its third annual Report on the State of the Retail Wealth Management.

(I always like their studies because of the depth and breadth of the data that they use – data representing more than 7 million retail investors, 500 million transactions and over $3.5 trillion in investment assets.)

While average (per advisor) overall production and assets under management increased last year, revenue on assets declined by 3%, as revenue growth did not keep pace with asset growth. Equity trade volume also declined, and while the shift to fee-based business continued, it did so at a slower rate than the year before. Among these somewhat mixed messages were some positive takeaways:

  • Advisors reduced the number of households that they serve from an average of 165 in 2011 to 159 last year – with the focus moving to deepening relationships with their largest clients.
  • The average size of households grew in 2012 by 13% (from $435,000 to $491,000) as did revenue per household.
  • The proportion of households with at least $250,000 in investable assets rose from 34% to 38%.

The key to future success, according to PriceMetrix, Inc. President Doug Trott, is that advisors “need to continue to increase the value of their service, by working with fewer households, deepening client relationships and increasing their capacity to service their remaining clients. Advisors also need to ensure that their pricing reflects their increase in value.” I concur with Mr. Trott.

Finally, and perhaps most useful to advisors, three areas of unrealized potential were identified by PriceMatrix in their analysis:

1 – 39% of households had less than $50,000 in investable assets, with the implication that advisors should consider dropping these smaller households if they can’t deepen these relationships. My guess is that the most successful advisors have a lot smaller proportion of these size accounts in their books of business.

2 – 42% of households have only one account with their advisors – somewhat surprising in the aggregate. Successful advisors leverage their relationships to open-up multiple accounts per client, including retirement accounts, and with multiple family members when possible.

3 – The average equity trade was priced at a 35% discount, meaning that the average advisor gave-up $46,000 in discounts last year. While these results are for equity trade, I think the same principle holds for fee-based business as well. The most successful advisors know their value and know how to price it without having to discount deeply.

Some good food for thought – every advisor should ask him or herself what changes they can make to their client mix to increase their productivity and spearhead growth in their businesses.

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