Top-flight advisors, many of whom saw assets and revenue hit record highs last year, share several characteristics, new research discovered.
According to the State of Retail Wealth Management published by McKinsey’s PriceMetrix division, successful advisors:
- Held the line on fees and refrained from lowering them.
- Generated a higher percentage of their revenue from fees as opposed to commissions and have more discretion over accounts.
- Added more household relationships in 2017 than less successful advisors and deepened relationships with current households.
- Attracted more younger investors.
- Worked with a team as opposed to by themselves.
Median revenue per advisor rose 12 percent to $655,000 last year over 2016, and median assets per advisor rose 15 percent to $106 million in 2017.
New client growth rates remain flat and prices for fee- and commission-based product lines continue to fall -- so what are top-earning advisors doing that other advisors might learn from?
For starters, top high-growth advisors were more likely to hold the line on fees, said Patrick Kennedy, chief customer officer for Price Metrix.
Standing Firm on Fees
Top advisors retained their fee structures even as pricing for fee and commission product lines fell, the research found.
Only 30 percent of advisors lowered prices year over year, while 70 percent maintained or even raised prices.
Advisors who lowered prices decreased fees by 23 basis points on average last year, while the remaining 70 percent of advisors raised fees by 4 basis points on average.
“The averages are being driven down and some advisors are lowering price by material amounts,” he said.
“We've not seen rates of declines like this before, but most important is that these advisors are not having any more success – either in generating revenue or gathering more assets – than those who've keep disciplined on their pricing,” he said.
When it comes to fees, averages are deceptive and advisors shouldn’t simply follow suit simply because headlines talk of average fees going down, he said.
“That's like the president of Mercedes-Benz saying the average price of cars is going down so we need to lower our prices,” Kennedy said.
Service, not Price, the Determinant
Clients are likely to leave their advisor because of service, not price, so many top advisors raised their levels of service by moving beyond portfolio construction.
Progressive and top-earning advisors have moved into financial planning, income protection and the de-accumulation phase of clients’ lives.
Average fees for households with managed assets of $1 million to $1.5 million fell to 1.08 percent last year from 1.13 percent in 2016.
Fees on new accounts for households with managed assets in the same asset range fell to 1.04 percent last year from 1.07 percent in 2016.
Commission prices also fell and transaction revenue as a parentage of assets fell to 0.39 percent last year from 0.44 percent in 2016.
Lower revenue yield was the result of less trading activity and lower price levels per trade.
InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at firstname.lastname@example.org.
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