Despite notable jumps in advisor assets and revenues, 2013 revealed a couple of clear warning signs for advisors, according to a new industry report.
First, the good news: Thanks to a roaring bull market in stocks, assets under management increased 12% for the average North American advisor, and average advisor revenue rose 5%, according to the fourth annual State of Retail Wealth Management report from PriceMetrix, the Toronto-based practice management software and data services company.
The average advisor managed $90.2 million in 2013, an increase from $80.8 million in 2012 and $74 million in 2011. Average advisor revenue increased to $578,000 in 2013 from $550,000 in 2012 and $537,000 in 2011.
Advisors were also generating more revenue per client: Average household revenue rose 11% to $3,670 per household from $3,300 in 2012 and $3,175 in 2011; and the size of an average fee-based account rose 14% to $293,000 in 2013, from $258,000 in 2012.
'EARLY WARNING SIGNS'
Yet the PriceMetrix report also revealed some "early warning signs" for the advisory business, says Pat Kennedy, a co-founder of the company and vice president of the client analytics group. Among them:
- Client retention rates declined to 90% last year from 92% in 2012 -- something Kennedy attributes to clients looking more critically at advisors if the client portfolios did not perform well in the bull market.
- Average fee account revenue on assets decreased to 0.99% in 2013, down from 1.14% in 2011 and 1.06% in 2012. Average revenue on assets in new fee accounts fell to 1.02% in 2013, down from 1.21% in 2011 and 1.04% in 2012.
- Perhaps because of that downward pressure on fees -- or, notes Kennedy, perhaps because larger accounts tend to pay less fees -- average revenue on assets dropped to 68% from 69%.
- Meanwhile, the average age of clients keeps rising, and is now just over 61 years old.
Average client age has been steadily rising approximately six months every year, Kennedy says: "If something isn't done, you have a very scary scenario for average client age in 20 years," he says.
To be sure, advisors had much to celebrate in 2013. "Average advisor production was up, the trend toward fees continued, and there were more high-net worth households," Kennedy points out. "On the surface there's a lot to be happy about."