Tough times take their toll: Includes chart

This lack of growth is reflected in the account distribution of their books. In recent years, advisors have focused on increasing their exposure to larger accounts. And although they continue to have some success at the very high end, advisors this year report that the smallest accounts represent an ever-larger slice of their books. In the 2007 Report Card, accounts worth less than $250,000 held the biggest share of the advisor’s book, at an average 60.6%. In 2008, the share for accounts less than $250,000 swelled to 64.6% of the average book.

For the first time, IE this year asked advisors to break that segment down even further, into accounts of less than $100,000 and into those valued between $100,000 and $250,000. The average rep says that the largest chunk of his or her accounts is in the sub-$100,000 segment, accounting for 38.7% of his or her book.

This growth in the share of smaller accounts appears to be coming primarily at the expense of accounts in the $250,000-$500,000 range. The share for these accounts dipped to 18.4% this year from almost 22.6% in 2007. In addition, there was very little change in the share for accounts in various ranges up to $2 million.

Of interest, however, was a significant jump in the share of accounts worth more than $2 million. Although these accounts are still by far the smallest portion of the average advisor’s book on a percentage basis — at just 1.4% — this represents a big jump from the 0.9% share of book these accounts represented last year.

One possible explanation of these seemingly contrary trends could be that dealers are still focusing their energies on collecting the biggest accounts, with some success. Yet, at the same time, their core client base has suffered a decline in assets due to market volatility, dropping the value of many accounts below the $250,000 mark and boosting the share of the average book these smaller accounts represent.

It appears that these same basic trends are in play among both the industry’s top producers — the top 20% of those surveyed — and the rest of the field.

IE distinguishes between the top producers and the rest of the advi-sors surveyed on the basis of productivity. In the past, productivity was measured in terms of AUM per client. This year, advisors were asked how many households they serve rather how many clients, in the belief that they could offer a more accurate estimate of the number of households on their books than the individuals. So, in this year’s Report Card, advisors report serving an average of 229 households vs last year, when they averaged slightly less than 400 clients each.

As a result of this change in methodology, productivity is now measured by AUM/household vs last year’s AUM/client. The top producers now are the top 20% of those surveyed as measured by AUM/household.

Although the metrics used to divide the advisor population are somewhat different year-over-year — and the productivity data itself isn’t exactly analogous with the previous year’s — it is still possible to compare some of the characteristics of today’s top performers with last year’s top performers, as well as the other 80% from this year with the same segment last year. For example, the AUM totals reported by both segments are in the same ballpark, suggesting that asset growth has been modest over the past year for both groups.

This year, the top 20% reported average AUM of $50.3 million vs $48.8 million for the top 20% last year. The top producers this year serve an average of 164 households; the average AUM/household is almost $350,000.

The other 80% report average AUM of $17.5 million this year vs $17.1 million in 2007. This smaller AUM is spread across a bigger client base, however, with the average advisor serving slightly less than 250 households and managing an average AUM/household of $75,000.

@page_break@Moreover, both segments of the advisor population have seen a similar shift in their account mix, with growth in the share of their books devoted to the smallest accounts and the largest accounts, combined with a contraction in the share represented by accounts in the $250,000-$500,000 range.

For the top 20% of advisors, the share of accounts in the sub-$250,000 category rose to 41.2% this year from 37.9% last year; the share of accounts of more than $2 million also rose notably, to 4.4% this time around from 3.2% in 2007. Again, the category that declined was accounts in the $250,000-$500,000 range, which fell to 22.1% this year from 28.4% last year.

Similarly, the remaining 80% of advisors saw the share of their books presented by the smallest category rise to 69.9% this year from 66.1% last year. The share of accounts of $250,000-$500,000 slipped to 17.6% this year from 21.2% in 2007. Also, once again, the biggest accounts (those of more than $2 million) saw their share of the average book jump to 0.7% this year from 0.4% last year.

Although the underlying trends are similar for both the top producers and the rest of the industry, the quantum of their account distribution is vastly different. For example, among the top 20%, the accounts at the higher end of the sub-$250,000 category represent a bigger share of the average book than those at the lower end of the range. Accounts of less than $100,000 represent only 19.8% of the average book for the top 20% of advisors, whereas accounts in the $100,000-$250,000 range make up 21.4% of their books.

In contrast, accounts of less than $100,000 are far and away the single biggest segment of the average book held by the other 80% of advisors. These accounts represent 43% of their books.

For the top 20% of advisors, the segment that has the single largest share is accounts that fall into the $500,000 to $1 million range, representing 22.9% of top producers’ books.

These differences between top producers and the rest of the industry are also evident in other data — most notably, in product mix and revenue sources.

For the top performers, fees are the biggest source of revenue; the top 20% report that about 60% of their gross revenue is derived from fee-based sources and only 34.2% is from transactions.

Conversely, for the other 80% of advisors, transactions remain the largest single source of revenue, at 49.1%. For these advisors, fee-based revenue is significant, at 46.2% of gross revenue, but it has yet to reach the importance that it has with the industry’s top performers.

When looking at the investment product mix, the top 20% of reps have more diverse books. Of course, for both segments of the advisor population, mutual funds are by far the biggest portion of their clients’ portfolios. For the top 20%, funds represent 62.5% of assets; that figure is 85.5% for the rest of the industry.

But the top performers have notably bigger allocations to other products. For example, third-party managed products account for 9.4% of client assets among the top 20% of advisors vs just 3.1% for the other 80%.

Similarly, in-house managed products make up 8.3% of client assets among the top producers vs just 2.4% of client assets for the rest of the industry — which is consistent with the asset-based nature of their businesses.

Top performers also boast bigger allocations to equities, bonds, alternative products and exchange-traded funds, suggesting a good proportion of the top producers hail from the Investment Dealers Association of Canada side of the full-service firms.

The distinction between top performers and the rest of the industry is less obvious when it comes to banking and insurance products.

Eighty-one per cent of all advi-sors have access to banking products, and when it comes to placing clients in banking products, guaranteed investment certificates are the product of choice almost 60% of the time; high-interest accounts, 26% of the time. The clients of the top 20% of advisors have modestly lower exposure to term deposits and principal-protected notes.

The top 20% of advisors also have the advantage when it comes to generating insurance revenue. Top producers report that their average annual insurance revenue is slightly more than $90,000, compared with about $50,000 for the other 80%.

Selling term life products are the most popular way of generating insurance revenue for both groups of advisors, accounting for around 42% of their insurance revenue. Permanent life products represent another 24% or so. Segregated funds garner a slightly lower allocation among the top 20% of advisors; they report that 20% of their insurance revenue comes from segregated funds vs 25% for the rest of the industry.

Although there are notable differences in account distribution, product mix and revenue origin between the books maintained by the dealers’ top-performing reps and the more run-of-the-mill advisors, none of that did much to shelter either group from the effects of troubled markets.

The good news, however, is that the average advisor didn’t see his or her book shrink in 2008. But amid turbulent markets, there wasn’t much growth to boast about, either. IE