In the lead story in the 2011 Top Wealth Managers Survey Special Report, we discussed the overall findings of survey respondents in terms of assets under management and growth in revenue. In part two of our special report below, we focus on the services offered by wealth managers and the prices they charge for those services.
All firms in the report market themselves as “wealth managers,” but the services provided under that label vary widely as well as the prices charged to clients exhibit significant differences.
In addition, the investment philosophy and approach of the wealth managers can be very different. The variability in the service package and pricing can be attributed to the fragmented nature of the industry as well as the relatively young age of the “wealth management” service model. Still, it likely also conveys some confusion regarding the exact practice standards and the best practices the industry follows.
The relationship between the revenue of a firm and its assets under management (we call it AUM Yield) should convey information about the pricing of the firm’s services and the typical size of the client relationship the firm works with. Since firms reduce the AUM fee for larger clients, there should be a strong negative correlation between the AUM Yield and the revenue per client for a firm.
However, what we find in the report is that the correlation between the two variables is very weak (-0.17). The average AUM Yield in the survey was 68 basis points but the standard deviation of the sample was 31 basis points, indicating that 75% of the firms charge between 99 basis points and 37 basis points—an obviously wide range.