August 8, 2011

2011 Top Wealth Managers: Client Base and Optimal Clients

Is bigger always better in terms of client size? Some surprising findings

top wealth managers logoIn the lead story in the 2011 Top Wealth Managers Survey Special Report, we discussed the overall findings of survey respondents. In the second article, we explored the services offered by firms and the prices charged for those services, while in the third article we focused on staff productivity.

In this article, we take a closer look at the relationship between average client size, productivity and profitability.

In the previous section we noted that larger firms tend to have better productivity ratios but that working with larger client relationships does not necessarily translate into better productivity. In fact, there seems to be an inflection point once a firm starts working with relationships that are larger than $10 million in AUM on average. We saw how at that level the number of clients per professional drops down to 11 relationships.

Top Wealth Managers--Revenue Per Professional and Client

 

 

 

 

 

 

 

 

 

 

 

As a result of the low ratio of clients per professional, wealth management firms that work with very high net worth individuals have very little advantage in revenue per professional over the medium size firms. The firms with the biggest clients have on average, revenue per professional of $563,000 compared to $537,000 in revenue per professional for the firms with mid-sized relationships.

This is essentially the same level of productivity, despite the fact that revenue per client is dramatically different–the firms with the largest client relationships earn on average $77,000 per client compared to $30,000 per client for the midsize client firms. The difference was even less in 2009–$479,000 in revenue per professional for the largest client firms versus $475,000 for the mid-size clients.

If we assume that both types of firms are employing the same level of professionals at the same compensation ranges, this means that firms working with the largest clients may not be any more profitable than those working with the midsize relationships. What is more, chances are that the ultra-high net worth firms are perhaps paying premium levels of compensation and thus may indeed have lower levels of profit.

That said, there is no doubt that increasing the average client size from under $5 million in AUM per client to over $5 million benefits a firm. The revenue per professional for firms working with the smallest client relationships (under $5 million in AUM per client) had revenue per professional of $430,000 compared to $537,000 for firm with $5 million to $10 million in AUM per client.

For all firms in the study, the productivity statistics have improved significantly from 2009–the average revenue per professional has grown from $395,000 in 2009 to $444,000 in 2010. This increase in productivity ratios signals to many firms that it may be time to hire professionals and other staff again.

See part five of our special report on the findings of the 2011 Top Wealth Managers Survey.

Return to our 2011 Top Wealth Managers home page for further analysis and data.

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