North American financial advisors had a very good year in 2017, enjoying record levels of assets under management and revenue production, deepening their client relationships and accelerating the shift toward asset-based fees.
But the news wasn’t all good, according to a new report from PriceMetrix, part of McKinsey & Co.
Advisors struggled to increase their client base, and prices continued their decline from both fee and transactional product lines.
PriceMetrix drew insights from its proprietary database of some two dozen North American wealth management firms that serve upward of 12 million retail investors with more than $6 trillion in assets.
The study found that assets managed per advisor increased by 15% to a median $106 million last year, driven mainly by strong markets. The MSCI World Index grew by 22.4% in 2017.
This, in turn, resulted in a turnaround of multi-year declines in revenues, a year-over-year increase of 12% to a median $655,000 per advisor.
At the same time, new client growth was basically flat, ticking up to 7.6 new relationships per advisor from 7.5 in 2016. The top quartile of advisors added 17 clients on average, while the bottom quartile added just one.
Penetration of next-generation assets was dismal, as millennials represented just 2% of assets, the same percent as in the preceding three years. In contrast, baby boomer assets rose to 55% last year, from 48% in 2014. Gen X assets treaded water, rising by two percentage points over the same period to 9%.
The implications, in the report’s words: “While money is gradually shifting to younger generations, the lack of new account openings and the climbing average client age [64.2 in 2017] are early signals that without market appreciation, advisors could face significant headwinds in the future with respect to asset growth.”
PriceMetrix found that even as firms labored to bolster their client base, they served their existing clients in more ways. Sixty-one percent of households had multiple accounts with their advisor in 2017, an average of 2.9 accounts, up from 57% and 2.6 accounts in 2014.
According to the report, more advisors were working as part of a team, a practice wealth management firms have increasingly encouraged. Sixty-one percent of advisors teamed up in 2017, a five-point increase from 2014.
PriceMetrix said its previous research showed that teaming up had several benefits, including faster growth. From 2015 to 2017, teams grew revenue 8.8%, while solo practitioner revenue grew by 6.9%.
The report found that fee-based account pricing continued downward for both existing and new clients, a result of advisors lowering fees. For existing clients with assets of $1 million to $1.5 million, fees slid to 1.08% in 2017 from 1.16% in 2014. Similarly for new accounts in that asset range: 1.04% in 2017 versus 1.13% in 2014.
And the effect of lowering fees on revenue growth? Doesn’t work.
PriceMetrix found that the 30% of advisors that reduced fees between 2016 and 2017 attracted $6.9 million per advisor, while the 70% that maintained or increased prices pulled in $7.8 million.
— Check out How Your Body Language Can Boost Client Trust on ThinkAdvisor.