Red Sky in the Morning

PriceMetrix recently released the firm’s annual report on key growth, pricing and market trends in the wealth management industry. What distinguishes the report is that it is based on a large sample of actual accounts. (The survey sample includes data drawn from 24 North American wealth management firms employing a total of 60,000 financial advisors, who serve 10 million investors totaling over $5 trillion in AUM.)

The report found that median assets per advisor have risen over the past four years. At the same time, however, median revenues have declined. The pressure on revenues is reflected in declining average fees as is shown in the table below. Transaction-based accounts have also suffered. The report indicates a drop in overall transactional revenue as a percentage of assets from 0.54% in 2013 to a low of 0.44% in 2016.

Source: PriceMetrix

Also notable in the report was a decline in the rate of new client growth. This is measured by the number of new household relationships added each year by advisors. This figure has dropped steadily from 8.3 in 2013 to a new record low of just 7.5 last year. Advisors may be facing challenges in appealing to younger clients. The share of client AUM accounted for by post-Baby Boomer generations has not grown materially in over four years.

Source: PriceMetrix

The wealth management business has been buoyed by strong markets in recent years which have lifted most boats. But data suggests looming systemic challenges to growth and profitability that firms would be well advised to address before markets turn adverse again.