If you’re an advisor feeling the pinch after several months of unprecedented market turmoil, you are not alone.
However, the good news is that if you’re heavily into fee-based business and you’ve steered your clients toward conservative portfolios, you’ll see the effects in a subdued, but not terrible income loss — and you probably won’t have lost as many clients, either. And if you’ve added insurance to your deck of cards, that diversified income stream will also have helped.
But generally, you’ll need to change your budgets “and get prepared to hang on,” says Bill Bell, a certified financial planner and owner of Bell Financial Inc.in Toronto.
Bell recites the litany of income hits to his business that any advisor would be familiar with: assets under administration have dropped heavily with the deflation of the equity markets, so too has revenue from trailers, commissions and fees from fee-based accounts.
Advisors everywhere are surveying the damage and are at least contemplating cuts of their own to marketing budgets and to administrative staff. Bell says he’s made the judgment for now that he won’t be making any of those cuts, so he’ll take the hit himself: “I am confident that we won’t need to do anything drastic. I’m not planning on cutting staff or freezing salaries.”
The top line numbers from the Investment Industry Association of Canada tell part of the story, at least. In the third quarter ended Sept. 30, commission revenue was down 17% year-over-year to about $1.2 billion. And Ian Russell, president and CEO of the IIAC in Toronto, says, “we could easily be down another 20% in the fourth quarter.”
Depending on how the fourth quarter goes, year-over-year revenue from trading commissions will be down 16% to 18%, to $5.3 billion, Russell adds.
If the numbers don’t match the level of pain you’re feeling in your business, it’s because the first half of the year was quite strong, Russell notes. In the first half, revenue was down only 3% from 2007.
“You had a lot of turnover and portfolio rebalancing,” says Russell. “I would say most brokers on the balance might have been moving clients to a greater weighting in commodities, taking advantage of the outlook for energy.”
Fee-based revenue, either in the form of fee-for-service or mutual fund trailers, has flattened out the revenue stream to some extent, but this can be a double-edged sword, Russell says. Some assets will have dropped more or less in lockstep with global equities markets around the world and these sorts of revenue make up just about a third of retail revenue in the industry now, he adds.
“Being in a strictly fee-based practice, my revenue is leveraged totally to the markets,” says Peter Pomponio, a senior advisor and CFP with Assante Wealth Management Ltd. in Montreal.
Pomponio says his year-over-year income is down only 8% because he tends toward a conservative asset mix for his clients; his income flow has been insulated by new business from clients that have heard about his approach. “Having more conservative and balanced portfolios has led to considerable referral business,” he says.
He’s not alone. Brian Shumak, a financial planner in Toronto, says he’s gained a half-dozen clients who were dissatisfied with their former advisors for whatever reasons: “From a commission standpoint, the only place that I have been hit is in the decrease in my monthly trailers, as the total block that I am managing has declined and the new clients that I have picked up do not have assets to equate to the decline, but it is not a dramatic difference.”
Dan Richards, president of Strategic Imperatives Ltd., and Julie Littlechild, president of Advisor Impact Inc. have jointly noted that this year of turmoil will mark one of the best ever prospecting times for advisors and that those who can communicate their value and service goals in a way that clients can understand will stand to make gains.
Obviously, there are two sides to that coin, as any new business you attain has been lost by another advisor. And, to top it off, many of your clients may be looking to other advisors as well.
“In previous market meltdowns, we seemed to be able to add new assets at about the same clip as they were decreasing due to the market. So, from 2000 to 2002, for example, we kind of moved sideways,” says Bell, who admits that his clients may be out shopping around. “We can’t possibly add new clients fast enough to offset the market damage.”
@page_break@On the plus side, not only have insurance sales picked up, but the levellized commissions insurance products offer can also help flatten out your income stream. Business from guaranteed investment certificates may be slightly up; and, at the bank-owned brokerage firms, interest from cash accounts is also helping. “What’s really holding things up is the interest and fee-based revenue in the retail side of the business,” Russell says. IE
Advisors feeling the pinch from market turmoil
Assets under administration, revenue, commissions and fees have all dropped in recent months
- By: Gavin Adamson
- November 10, 2008 November 10, 2008
- 13:23