Brokers’ businesses returning to form

The average broker in this year’s survey is enjoying a sizable increase in assets under management. Average AUM increased to $77.2 million this year vs $70 million last year. And this isn’t solely the result of AUM rising as clients’ battered portfolios recover lost ground in the resurgent markets; brokers have also been able to woo new clients, pushing the average client roster up to almost 229 households in this year’s survey from 218 in 2009.

Perhaps most important is that broker productivity — as measured by AUM per client household — is recovering at an even faster rate. Average AUM/client household rose to $517,106 this year from $437,876 last year.

Although there’s no question that this is good news, it’s not all coming up roses for brokers. It appears that the tough markets of the past couple of years have also exacted a price on some advisors in the brokerage business. IE‘s data also reveal that the broker population has aged notably, implying a certain amount of attrition is taking place within the industry.

Tough underlying market conditions — which make it difficult to attract new clients, win assets from existing clients or to grow those assets in value — can also serve to drive underperforming brokers from the business. And the aging of the broker population that has taken place over the past year suggests that these scenarios may have played out.

The average age of brokers who participated in this year’s survey was 47.7 years, up from 46.4 years in last year’s survey. The fact that the average age jumped by more than a year suggests that some younger reps are exiting the brokerage industry — especially because the figure seen in 2009 had remained stagnant for several years.

This hypothesis is bolstered by the fact that the average industry tenure reported in the survey also grew by more than a full year, to 18.2 years in this year’s survey from 16.8 years in 2009. So, not only is the broker population older, it’s also more experienced, which also suggests that industry veterans have been hanging in somewhat better than their younger counterparts.

Age and experience are key advantages in the brokerage business. For one, a broker with a longer tenure in the business has simply had more time to accumulate AUM and build a book of business. The experienced advisor has also had the time to figure out whether he or she can cut it in the industry. In contrast, a younger broker population may include lots of rookies who have yet to realize the brokerage business isn’t their cup of tea.

Indeed, there is a notable gap in age and experience between the top-performing brokers in the business and the rest of the industry. Dividing the broker population based on productivity (as measured by average AUM/client household) reveals that the top 20% of brokers are a full year older and have an edge in industry experience of more than three years over the rest of the industry — the average age for the top 20% is 48.5 years, with just less than 21 years in the industry, compared with an average age of 47.5 years and slightly more than 17 years in the business for the remaining 80% of brokers.

These two segments of the broker population have also had starkly different experiences over the past year. For the top 20%, AUM has grown more slowly, but client numbers have been trimmed (while client rosters expanded for the rest of the industry). As a result, these top performers have increased their edge in productivity growth as well.

Average AUM for the top 20% has only seen single-digit growth, rising to $157 million from $148 million in last year’s survey. In contrast, average AUM is up by more than 12% year-over-year for the other 80% of brokers — to almost $57 million from less than $51 million last year.