The latest version of Investment Executive’s Report Card on Banks and Credit Unions reveals that financial advisors who ply their trade within deposit-taking firms are enjoying growth and — perhaps more important — their businesses are continuing their transformation into more formidable competition for the traditional retail investment industry.
Indeed, the average advisor in the deposit-taking channel is enjoying a growing book of business and flourishing productivity. Average assets under management are now sitting at $49.5 million, up from $47.4 million last year. This gain in AUM recovers ground that these advisors had lost in 2010, when AUM dipped in the aftermath of the global financial crisis.
At the same time, productivity (as measured by AUM per client household) is rising as well. In last year’s survey, average AUM/client household was sitting at $244,145. This year, that number is up impressively to $257,900.
This increase in productivity is not because of AUM growth alone; advisors are also focusing their books on their most valuable clients by trimming their client rosters. This has long been a trend in the traditional brokerage and fund dealer channels — and apparently things now are no different for bank- or credit union-based advisors. This year, the average client roster in the deposit-taking channel has been reduced to 334.2 client households from 358.7. The combination of both AUM growth and declining client numbers means that average productivity is growing faster than AUM alone.
Yet, this is not a channel that appears to be reaching the sort of maturity for which top-line growth is almost tapped out and advisors can sustain their momentum only by farming their most fertile clients more intensively. In fact, there are plenty of signs that this channel still has some growing up to do.
Indeed, this segment of the financial services industry got a fair bit younger in the past year. The average age of advisors responding to IE‘s survey is down to 41.5 years from 43.3 years in 2010. This dramatic drop suggests that the banker population is seeing changes at both ends of the spectrum — an influx of younger advisors and an outflow of the older veterans.
In last year’s survey, about one-third of respondents were 50 years of age or older. This year, that’s down to about 25%. At the same time, the proportion of respondents who say they are 30 years old or younger has grown to 17.4% from 13.6% last year.
In step with this apparent youth movement, average tenure in the business is down to 15.9 years from 18 years in 2010. And, advisors’ tenure with their current firm is now, on average, 11.9 years, down from 14.8 years in 2010.
And not only is the sales force getting younger, but it is also more mobile — another area in which deposit-taking institutions are beginning to resemble the traditional investment industry. Competition over top talent has long been a feature of the brokerage business, with firms perpetually waging war with each other over top-producing advisors. It appears the same tussle may now be taking place among the banks. Indeed, zeroing in on the top-producing advisors in IE‘s survey highlights the extent to which advisors’ newfound mobility among firms has emerged.
IE distinguishes the top performers on the basis of productivity, classifying the top 20% of the overall advisor population as “top performers.” Among that top 20%, the overall trend toward younger, more mobile advisors is particularly evident. The average age of the top performers has plunged to 42.1 years from 47.8 years in 2010. In fact, in this year’s survey, there are more top performers under the age of 35 than there are over the age of 50.
Similarly, the average time in the business for top performers has dropped to just 16.2 years from 23.1 years in 2010. And the average tenure for top performers with their current firm has dropped furthest of all, plunging to just 13.4 years from 21.5 years last year.
One caveat is that the top performers represent a relatively small sample size, which can amplify the impact of such shifts. Nevertheless, given that the same trends are evident among the rest of the advisor population — with average age, industry experience and tenure with the current firm all down significantly — it’s evident that there is a movement toward youth and increased mobility underway.
The particularly stark shift in demographics among the top performers also helps explain some of the other results in this segment of the industry. For instance, although overall average AUM has risen, average AUM actually ticked downward among top performers to $105.3 million from $106.7 million in 2010.
And contrary to the overall trend to smaller client rosters, the average roster among top performers jumped to 233.4 client households this year from 192 client households in 2010. This suggests that among top performers, there are advisors who are generating superior productivity by focusing largely on their most lucrative clients as well as advisors who are building their client rosters.
Notwithstanding these seemingly conflicting underlying trends, the top performers still enjoyed impressive gains in their productivity, pushing average AUM/client household to $848,299 from $770,732 last year.
The rest of the advisor population is also managing a small gain in average productivity; however, they are doing this the more traditional way — by gathering assets faster than they add clients.
The gains in productivity are reflected in the shift in account distribution. The majority of accounts for the average advisor are still worth less than $250,000, but the share of book dedicated to accounts of this size is shrinking. In 2010, advisors reported that 67.6% of their accounts fell into this range; this year, that share is down to 59%.
At the same time, accounts in the $250,000 to $1 million range have seen their share grow substantially. Last year, this range represented 27.9% of the average advisor’s book; in 2011, that share is up to 36%.
The share for accounts worth more than $1 million has barely changed from last year — although the mix has shifted more toward accounts at the lower end, in the $1 million-$2 million bracket.
Advisors in this channel are also seeing a continuing drift toward more variable compensation — another trend that echoes the traditional retail investment channels. In 2010, salary accounted for 76.6% of the average advisor’s pay in the deposit-taking channel; this year, it’s down to 70.1%.
Instead, advisors are increasingly relying on bonuses, transactions and fees. Of these variable revenue sources, bonuses are still the biggest component, representing 17.4% of compensation, up from 14.8% in 2010. But transactions now account for 9.9% of the average advisor’s pay vs 7.8% in 2010, while fees have grown to 2.4% from 0.3% a year ago.
For the top performers, salary is now down to just 52.1% of total revenue from 60.5% in 2010. Bonuses remain at about 27%, but transactions have climbed to 14.1% from 10.5% in 2010, and fees have jumped to 6.7% from 1.2%.
Among the remaining 80% of advisors, salary is also declining in importance — it now comprises 72.4% vs 79.9% in 2010. However, the big jump has come in bonuses, which now represent 20.4% of their pay, up from 14.6% a year ago. Fees have also risen in significance for this advisor segment to 2.5% from 0.4% a year ago. IE