The wealth management industry had a strong 2013, but advisors have rising markets to thank, not skill.
Average AUM and revenues grew throughout the year, says a new PriceMetrix report called The State of Retail Wealth Management.
In fact, “total assets increased by 11% between 2012 and 2013, and total revenue increased by 6%,” it adds. “[And] looking at the typical advisor’s performance, average advisor assets grew from $80.8 million in 2012 to $90.2 million in 2013.”
Further, “Annual gross production climbed from $550,000 in 2012 to $578,000 in 2013.”
Yet, the report suggests the industry’s solid performance was mainly due to improving markets. It finds, “Growth in assets and revenue [was] driven mainly by market appreciation,” with the Dow Jones Industrial Average having surged by 26% and the S&P/TSX 500 having increased by 10%.
What’s more, annual client retention rates decreased in 2013, says the report, since advisors only kept 90% of clients last year, compared to 92% in 2012.
It adds, “The largest decrease in annual retention rates occurred among households with $1 million or more in investable assets, [going] from 96% in 2012 to 93%” last year.
As such, the report questions whether current advisory businesses are sustainable over the long term, especially since “advisors’ rosters of clients are aging faster than the general population.”
A look at compensation
Last year, the percentage of fee-based assets in Canada rose from 28% to 31%, and fee-based revenue increased from 45% to 47%, says the report.
“The industry-wide transition to a fee-based model [is] happen[ing] at the same time as the downward trend in pricing for fee-based accounts,” it adds. “Average fee account return on assets (RoA) [fell] from 1.14% in 2011 to 1.06% in 2012, and [then] decreased further to 0.99% in 2013.”
Looking at new fee accounts, the report finds, “Average RoA decreased from 1.21% in 2011 to 1.04% in 2012,” and then dipped to 1.02% in 2013.
These drops can be partially explained by the fact that advisors are serving more big clients, but fewer clients overall. Though average fee account assets went up from $258,000 in 2012 to $293,000 in 2013, larger households tend to generate lower RoAs, says the report.
It adds, “The average number of clients in advisors’ books decreased from 159 in 2012 to 156 in 2013,” despite the jump in assets being managed throughout the year.
How can you succeed?
To ensure you attract and retain clients, comprehensively explain your services and “deliver value propositions that…attract and keep desirable wealth management clients,” says the report.
Since your books are aging, also look for younger prospects and intergenerational referrals, it adds, and encourage industry players to “respond to downward pressure on fees.”
If you’re struggling to grow your business, try looking to the “top quartile of advisors [who]… attracted, on average, 4.5 high-net-worth households,” concludes the report. These lead performers are focusing most on wealthy clients, and managed to retain 99.4% of their books in 2013.