North American financial advisors increased production and significantly raised average assets under management in 2012, according to a new report from Toronto-based PriceMetrix.
The research firm reports that average assets under management (AUM) rose by about 9% in 2012, from $74.0 million at the end of 2011 to $80.8 million at the end of 2012. And, average annual revenue also grew by about 2% in 2012 to $550,000, up from $537,000 in 2011. PriceMetrix says it found no significant differences between the U.S. and Canadian markets, so the report is based on the combined North American market.
The divergent growth rates for revenues and AUM means that average revenue on assets (RoA) declined by 3% in 2012, the firm reports, with advisors earning an average RoA of 0.69% in 2012, down from 0.72% in 2011.
“Financial advisors made good progress in 2012,” said Doug Trott, president and CEO of PriceMetrix. “Average revenue continued to grow while assets under management not only grew sharply, but also reversed the previous year’s decline. Average assets under management are now at a record level.”
Additionally, the firm notes that equity trade volumes also continued to decline, with the average advisor completing 346 equity transactions in 2012, down 10% from 386 in 2011. Average trade sizes declined by 4%, and the value traded dropped 13%.
“The continued decline in equity trade volume remains a concern across the industry, as it restrains overall revenue growth,” noted Trott. “Reducing the rate of discounting remains a challenge for advisors and their firms, as well as a significant growth opportunity.”
It also reports that the ongoing shift to fee-based business continued in 2012, albeit at a slower pace than in previous years. PriceMetrix says that the proportion of assets held in fee-based accounts is now at 28%, up from 26% at the end of 2011. And, fee-based revenue increased from 43% to 45%. The average number of fee accounts per advisor also rose from 85 to 92, it says, yet the average RoA on fee-based accounts declined from 1.14% in 2011 to 1.06%. “Part of the drop can be explained by an increase in the number of large households serviced by advisors that typically pay a lower percent amount in fees,” it notes.
The report also says that the number of households advisors serve is down to an average of 159, from 165 the previous year. Given the headline increases in AUM and revenue, average household assets increased 13% to $491,000, and average annual household revenue rose 4% to $3,300.
“The state of the retail wealth management industry remains robust, as seen by a variety of measures, including the increase in production and assets under management, as well as the continued increase in retirement assets,” said Trott. However, he also noted that “advisors need to continue to increase the value of their service by working with fewer households, deepening client relationships and increasing their capacity to service their remaining clients. Advisors also need to ensure that their pricing reflects their increase in value.”