The state of retail wealth management in North America

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Financial advisors at North American wealth-management firms continued to ride the high tide of well-performing markets in 2017. Assets managed per advisor grew by 15 percent to a record $106 million in 2017. This significant and predominantly market-driven1 asset growth resulted in a corresponding increase in revenues, helping advisors turn around a multiyear decline. Median revenue per advisor was $655,000 in 2017, up 12 percent year over year.

But what about the underlying drivers of the business? The results are mixed. In addition to record highs with respect to assets managed and revenue generated, advisors deepened existing relationships and accelerated their shift away from transactions and toward asset-based fees.

However, advisors continued to struggle to add new clients, particularly with younger investors. And price levels—for both fee-based and transactional business—continued a multiyear decline. These insights are based on PriceMetrix’s proprietary database, which represents more than 20 North American wealth-management firms, who service more than 12 million retail investors with more than $6 trillion in assets under management.

Struggling to add new clients

In 2017, there was a modest uptick in new household relationships.

Despite strong asset and revenue growth, advisors continue to struggle to add new clients. After several years of decline in the number of new households added per advisor, 2017 did see a very modest uptick, with 7.6 new relationships per advisor, up from 7.5 in 2016 (Exhibit 1).

Behind the aggregate statistics, there is a tremendous range in performance from advisor to advisor. The top quartile, or 25 percent, of advisors who added the most new households in 2017, added 17 on average, compared with one household on average for the bottom quartile. Interestingly, previous PriceMetrix research shows that top and bottom performers look relatively similar with respect to tenure, geography, price level, and client demographics. With such a wide performance gap, and a strong link to overall practice growth, it is understandable that more firms are incorporating new client acquisition as a metric in their compensation plans.

The price for wealth advice continues to decline

Pricing on fee-based accounts continued to slide in 2017. For households with $1.0 million to $1.5 million invested, fee account pricing dropped from 1.13 percent in 2016 to 1.08 percent in 2017. The drop was a result of advisors lowering fees for both existing and new-client accounts. Fees for new accounts are lower than for existing accounts, and continue to fall, from 1.07 percent in 2016 to 1.04 percent in 2017 (Exhibit 2). The drop in fees affected households of all sizes, with steeper declines for smaller households.

Fees for both existing and new accounts continued to slide in 2017.

Not all advisors are lowering prices

Overall in 2017, advisors realized revenue growth, while prices continued to decline. To understand the relationship between the two, we looked specifically at advisors who lowered prices in 2017. Surprisingly, only 30 percent of advisors lowered price levels year over year, while 70 percent maintained or even increased prices. The advisors who lowered their price experienced lower growth than those who maintained or increased their price, and they attracted fewer new-fee assets (Exhibit 3). Lowering prices to add assets and drive growth is generally not an effective strategy.

Advisors who lowered prices experienced lower growth and attracted fewer new fee assets.

For more insights on retail wealth management in North America, download The state of retail wealth management, the full report on which this article is based (PDF–5MB).

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