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Advisor Business Growth Faltering: McKinsey Report

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If only the Department of Labor’s new fiduciary rule were the only challenge facing advisors today — but it’s not.

According to a study released this week by PriceMetrix, part of McKinsey & Co., advisors’ average assets under management improved 6% in 2016 from the prior year and hit $92 million.

That’s where the good news ends.

Revenue per advisor — or average fees and commissions — decreased for the second year in a row: They dropped 1% to 583,000 in 2016.

“This trend is particularly disturbing in light of the strong equity market performance during that period,” said Patrick Kennedy, chief customer officer of PriceMetrix, in “The State of Retail Wealth Management.”

Drilling down into the acquisition of new clients, the research finds that advisors reached “a new low” in 2016, with an average of only 7.5 new household relationships.

Source: PriceMetrix

“There is very little growth in client relationships with Gen X and Gen Y. This is an early warning sign that advisors should pay attention to,” Kennedy explained in an interview with ThinkAdvisor.

“Some of these individuals are in their 50s and becoming attractive prospects,” he added. The issue for advisors, of course, is can they covert these prospects to clients.

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The study found that advisors are growing their fee-based revenue, which now represents about 54% of their production — up from 49% a year ago. 

However, the level of fees as a percentage of assets fell in 2016 to 1.13% from 1.16% in 2015.

“This decline follows several years of stability, and raises concerns that advisors may be succumbing to the price pressure from new wealth management competitors, such as robo-advisors,” Kennedy said.

For new accounts, the news is even worse. The fee ratio dropped to 1.07% in 2016 from 1.12% a year earlier. 

“Programs that encourage advisors to communicate their value to clients and defend commission and fee levels are essential,” he added.

— Check out 100% Advisory Payouts & 7 Other ‘Heresies’ on ThinkAdvisor.