Financial advisers have grown savvier about their clients this year and have the assets to prove it, says a new report from Rydex Global Advisers AdvisorBenchmarking.com.
Despite a precipitous drop in the stock market, the average minimum account size for large advisers has increased 21% to $725,000 from $600,000 in January. Smaller advisers -- those with less than $100 million in assets under management -- watched their account sizes drop nearly 8% to $303,000 from $330,000, still an upbeat note considering the bear markets bottom.
How does this happen? Advisers have been shopping around for clients, much like clients shop for advisers. Consequently, advisers end up with more patrons that fit their niche, which in turn means more efficiency and higher profit margins, said Rob Steele, executive vice president of marketing for Rydex.
"[Advisers] are firing clients and targeting clients that fit their client trend," Steele said. "Being a little more selective is smarter."
Word-of-mouth referrals from existing clients account for 40% of total assets -- versus 43% in January -- for fee-only advisers. Steele said advisers have gone from passive referrals from clients to receiving more referrals from allied professionals, such as accountants, lawyers and even real estate agents.
Aside from these positive signs, many advisers appear to struggle with building their practices beyond $75 million in client assets. Pretax margins drop from 38% among planners with $50 million to $75 million in assets under management to 24% for those with between $75 million and $150 million. Over $150 million, the margins widen to 30%.
Around the $75 million mark, Steele said advisers find themselves spending more on staff, products and technology, which account for smaller margins.
Also, advisers ranked the struggle to balance their daily responsibilities with developing a long-term strategic plan as the top threat (6.8 out of 10) to their practice. Managing client expectations (6) and downward pressure on fees (5.5) were fears that finished second and third.
Rydexs updated report included 684 advisers; 71% were fee-only. The mutual-fund companys first report in January included 260 advisers of which 78% were fee-only.