It was a prosperous 2014 for the retail wealth management industry, with average advisor assets hitting a record high and revenue and productivity also going up, according to a recent report by Toronto-based PriceMetrix Inc.

Assets under management for the average advisor reached $97 million in 2014; average advisor revenue increased 13% to $655,000; and revenue on assets improved to 0.69%, the first increase since the beginning of the financial crisis in 2008.

Advisors also continued to reduce the size of their client base. The average number of clients in an advisor’s book fell to 150 in 2014, down from 156 in 2013. Since 2011, advisors have reduced the number of clients they serve by ten percent.

“Financial advisors and their firms should be very pleased with their performance in 2014,” says Doug Trott, President and CEO of PriceMetrix. “They made significant short term progress but, perhaps more important, they made fundamental improvements as well, such as increased client retention.”

Advisors’ ability to hold onto clients was another theme in the report. For example, among clients with more than $2 million in assets, the retention rate rose from 97.4% to 97.7% between 2013 and 2014.

The report also found the industry is continuing its transition to fee-based revenue. The percentage of fee-based assets in the average advisor’s book increased from 31% in 2013 to 35% in 2014, while the percentage of fee revenue rose from 47% to 53%. Fee-based pricing also improved in 2014, rising from 0.99% in 2013 to 1.02% last year, the first increase in several years.

“The ongoing trend towards fewer clients is also extremely positive, as is the increased percentage of fee business,” says Trott. “Both of these trends are directly improving advisor productivity and client experience which is at least partially reflected in last year’s impressive results.”

However, the report comes with a few cautionary notes for the industry. One of the fundamental challenges is the aging of both advisors and clients. Advisors are aging faster than the overall population. As well, advisors are placing greater focus on attracting older clients, who typically have higher assets.

“Advisors and their firms simply cannot afford to overlook younger clients,” says Trott. “They need to devote a significant portion of their business development efforts to younger clients or their future growth will slow down.”

Advisors and firms are also going to have to address the growing gap between fee-based and transactional-based pricing, which widened last year.
“Clients in traditional transaction-based accounts may be even less inclined to move towards a fee-based relationship with an advisor, if transactional business continues to get cheaper,” states the report.