The average broker may be just a year older and a year wiser, but he or she should also be a whole lot richer. The markets’ bounce in the past year and the ongoing shift in the advisors’ books toward high net-worth clients has boosted the size of brokers’ books impressively.
Compared to the average broker whom we profiled last year, this year’s counterpart has changed as might be expected. The average age of advisors in our survey has ticked up to 45 from 43. More important, the average tenure in the industry has risen to 11 years from 10. The increase suggests many firms have kept to their existing sales forces and there hasn’t been a flood of rookies into the business. The average tenure with current firms has hardly changed, rising to 6.6 years from 6.4, which indicates industry turnover is more or less consistent with previous years.
The big changes come is in the composition of brokers’ books.
One basic statistic that leaps off the page is
average assets under management, which jumped 12% to $60.5 million in 2004 from $53.9 million a year earlier.
The increase extends a growth trend we’ve observed over the past few years. In 1998, the average broker had about $41.1 million in AUM. Over the past six years, that total has risen by almost 50%, putting the average annual growth rate for that period at less than 8%. The 12% jump this year highlights the fact that 2003-04 was a particularly strong period for asset growth.
Strong gains in most equity markets certainly helped brokers expand their AUMs, but the continued shift toward high net-worth clients also plays a big role in the story.
That trend is evident as brokers continue to pare down the size of their client bases. In the 2004 survey, the average broker’s book was 280 clients, a drop from 307 last year and 348 the year before. This suggests the segmentation trend continues to affect the industry — many firms are pushing their brokers to focus on the top 20% of their clientele, streaming smaller clients into discount brokerages or to other firms willing to handle smaller clients.
The ongoing trend toward higher net-worth clients helped push the average AUM/client for the industry overall to $251,847 in 2004.
That’s up from $175,342 last year, more than double the average we observed in 1998 and a far cry from the average AUM/client of $90,617 in 1995.
Richer clients
The client account mix that brokers report also reflects their focus on wealthier clients. Only 18% of accounts now fall into the less-than-$50,000 category, brokers say, down from 23% last year. In 2004, the lion’s share of accounts, 36%, falls into the $50,000-$250,000 range. A further 24% of accounts is in the $250,000-$500,000 range; 15% is between $500,000 and $1 million; and 9% is in the $1-million range.
(The data reflect overall averages of brokers’ estimates of their account breakdowns, so it does not quite add up to 100%.)
The move toward higher net-worth clients also continues to tilt the average broker’s product mix. Although third-party managed products, such as mutual funds, are still the biggest single component, there is strong growth in direct securities and proprietary products.
We refined our asset categories this year to capture the character of brokers’ books better, which means direct comparisons with previous years are tougher but current data are more useful. For example, we’ve broken the “managed product” category into third-party and in-house products (including mutual funds, hedge funds and wraps) to isolate trends better in that area, particularly as firms continue to push proprietary fee-based accounts. Similarly, we’ve broken out income trusts and put them into a category of their own to eliminate any confusion about whether they should be classed as equities or fixed-income. We’ve also added a life insurance category, to capture that growing niche.
With those caveats, it’s fairly clear the push to bigger accounts is changing the asset mix. Managed products still lead the way, comprising almost 37% of the average broker’s book, vs 40% last year. However, about 21% of that total is now represented by proprietary products, with the remaining 79% in third-party products.
The utilization of individual equities and fixed-income is also down a bit year-over-year, but the results are skewed by the début of the income-trust category, which, brokers say, now represents 9% of their books. Cash holdings are stable at about 5%, with equities dropping to 27% from 28% and fixed-income holdings falling to 23% from 28% last year. Life insurance is said to account for 2% of assets.