The Numbers Are In: The Good Days Are Back

As would be expected, advisors’ revenue soared following those ballooning assets. In 2003, responding advisory firms saw their revenues rise 15.35% from the prior year to a median $917,000.

As with the reversal in assets, a single year of strong revenue growth corrected the deterioration of the preceding three years. The strong showing in 2003 brought revenues to levels higher than even 1999 ($917,000 vs. $902,000), as shown in chart 2 below. While the 1.66% increase for the entire period is actually a decline when taking inflation into account, it is still better than the asset performance highlighted earlier, which merely remained flat.

Despite the positive revenue growth in 2003, one might wonder why revenues grew at a pace lower than the assets under management (15.35% vs. 22.54%). The answer is simple: Advisors do not generate all their revenues from managing money. Last year, AUM fees made up only 78.65% of total revenues, with the remainder coming from financial planning fees (20.15%) and a small slice (1.2%) from commissions.

This diminishing dependency on AUM to generate revenues is not new to the industry and in fact is quite a positive trend, as it diversifies the revenue stream across multiple sources and reduces advisors’ dependency on the stock market for revenue. The trend proliferated especially during the bear market between 2000 and 2002, where the weighting of AUM fees in the revenue mix declined from 85.39% to 74.25%, as shown in chart 3 below.

In all, 2003 was a great year for independent advisors. As always, you should examine the above numbers and compare them to your own. In the next issue, we will discuss the ramifications of the survey’s results for advisors’ profit margins and clientele, so stay tuned.

Ramy Shaalan is Vice President of AdvisorBenchmarking.com, an affiliate of Rydex Global Advisors. He can be reached at [email protected]