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Industry Spotlight > Women in Wealth

Insights From the 2012 Top Wealth Managers Survey, Pt. 3: Siren Call of the HNW Client

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In the overview of the findings of the 2012 Top Wealth Managers survey, part one of our analysis of the survey, we argued that the wealth management industry is rapidly changing. In part two of our analysis, we addressed profitability and productivity. In this article, we focus on an interesting finding from the survey—the point at which HNW clients appear to require more in service than they add in revenue—and look ahead to the future of wealth management. 

Working with wealthier clients and larger portfolios seems to be the intuitive solution for achieving higher productivity for wealth management firms. But our 2012 Top Wealth Manager data suggests that at some point, the very wealthy clients seem to require more in service than they add in revenue.

If we split the participants in the survey by the average size of their client accounts, we will find an inflection point near $20 million in AUM per client. Firms that have an average client size over $20 million reach very high levels of total AUM, an average of $4.1 billion, but a relatively lower average revenue size of $4.8 million compared to AUM.

In contrast, firms that work with relationships between $5 million and $20 million have total AUM of $1.8 billion, but have $7.4 million in revenue. If we calculate the relationship between revenues and assets, we can clearly see the inflection point. Firms with large relationships have a yield (revenue to AUM) of 18 basis points while medium-size firms have yield of 40 basis points.

The high cost of the relationship is also visible in the ratio of clients per advisor. Firms with over $20 million per relationship have eight clients per advisor on average; firms who work with smaller relationships, those under $5 million in AUM, have 59 clients per advisor. This is where the lack of leverage becomes apparent.

While average client size is vastly different, the revenue result is about the same. Firms working with the largest clients have revenue per professional of $474,612 while firms working with small relationships have revenue per professional of $456,863, slightly smaller but not qualitatively different. It seems the optimum trade-off between size and productivity is between $5 million to $10 million in AUM.

Where Wealth Management Begins: Client Retention

We mentioned that growth is a priority, but in wealth management, everything starts with a focus on existing clients.

It should be of no surprise that first and foremost, advisors want to focus on retaining their client 


This is true for firms of every size (see table below to view the priorities expressed by the wealth management firms in this year’s survey, based on their size measured by total assets under management).

Retention fuels growth through existing client referrals. In fact, we can look at the first four items on the chart on the left as a continuous cycle—retention creates referrals from existing clients, which brings revenue growth to the firm; in turn, an increase in revenue then brings an increase in profitability.

Unfortunately, this cycle can be very slow and interrupted by market movements or other events. Referrals from clients alone are not enough for meeting most growth goals and revenue alone is not enough to grow profitability.

Viewing the priorities of the wealth managers in this year’s survey by firm size indicates that all firms regardless of size still place serving and retaining clients as their top priorities, followed by finding good new clients, growing revenues and growing profits.

Productivity issues may be the reason why, when participants were asked in the survey what help they would want to receive from custodians, their top two responses were technology and practice management. This is where some of the needs diverge between the largest and smallest firms. The largest firms had significant interest in product, alternative investments and education on new investment vehicles, while smaller firms assigned the least importance to alternative investments and other product information.

Of the participants in the study, the table on the prior page shows that 47% use Charles Schwab as their primary custodian, 20% use Fidelity, 11% use TD Ameritrade, 7% use Pershing and the remaining 15% are split among multiple firms. Most firms, however, use multiple custodians with, on average, 77% of their assets being held with the primary custodian.

Primary custodian market shares remain consistent across all segments, with the exception of Pershing and TDA. These two custodians traded their spots on the list with the largest participants using Pershing as their primary custodian (13%) versus TDA (4%).

What’s Next for Wealth Management?

The 2012 Top Wealth Manager survey shows an industry in a period of prosperity, high AUM and attracting very high-end clients. The industry is also changing: the size of the average firm has grown, and the bar to be one of the top firms is higher than ever before. What is more, the nature of wealth management firms is changing. Many are owned by large public companies or national brands, and many are much larger firms than the respective local offices of their traditional competitors, wirehouse firms and trust companies. You can see advertisements from several firms on national TV, radio or in magazines.

The word independent, too, is becoming harder to define and use. Yet, the more things change, the more they stay the same. Success comes to those firms which can create a long-term, sustainable growth strategy and patiently build on their strong client relationships. The challenges remain the same—finding the optimal balance between the size of the client relationship and the cost of service while creating a productive service model that relies on teams and the most experienced professionals.

The Top Wealth Managers in the AdvisorOne survey provide an example for the entire industry to follow—a path to growth and success in business and client service.

Please visit the 2012 Top Wealth Managers home page for additional data and analysis.

For reprints of this article, other content from the 2012 Top Wealth Managers and for all AdvisorOne, Investment Advisor and Research content, we invite you to contact our reprints partner, PARS International, though our reprints home page.


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