| NEW YORK, April 7
NEW YORK, April 7 Despite a surging stock market
that made North American brokers and their clients wealthier in
2013, investors left their brokers at a higher rate than in
2012, according to a new study.
PriceMetrix, a Toronto-based consulting firm that advises
brokerage firms in the United States and Canada on how to
squeeze more profit from client accounts, said client retention
rates and fees charged as a percent of client assets dropped for
most U.S. brokers.
"Last year was a profitable year for the retail wealth
management business, with assets and adviser production
continuing to climb, as they have every year since 2009," said
Doug Trott, president of PriceMetrix. "It would be a mistake,
however, to view this as entirely positive. Much of the growth
was driven by market appreciation, and there are significant
questions about client retention, pricing and an aging client
population going forward."
About 93 percent of client households with $1 million or
more of investment assets stayed with their brokers last year,
down from 96 percent in 2012, according to PriceMetrix's "State
of Retail Wealth Management" report released on Monday.
Brokerage firms have been encouraging advisers to abandon
less-profitable accounts from households with less than $250,000
to invest, but the retention rate among that category fell more
slowly to 90 percent from 92 percent in 2012.
"A bull market is not a business growth strategy," said
Patrick Kennedy, PriceMetrix's vice president of client services
and analytics. "The study suggests that in rising markets,
clients are more vulnerable to leave. The most important thing
advisers can do is stay plugged in to clients and understand
what's on their minds."
The average household assets of clients among North American
full-service brokers grew 15 percent to $562,000 from $490,000
The millionaire clients do not appear to be leaving for
alternatives to traditional brokerage firms, such as independent
investment advisers or discount brokerage firms, because
accounts overall grew among the full-service firms, said
Kennedy. But the decline in wealthy client loyalty is disturbing
in a year when the stock market rose about 30 percent and client
assets grew. "You'd think everyone would be high-fiving their
adviser," he said.
The fall came even as brokers appear to be lowering fees for
clients. Average adviser revenue on assets, a proxy for fees
charged in advisory accounts, fell to 0.68 percent of total
client assets from 0.72 percent in 2011 and 0.69 percent in
2012, the study found. Account fees generally decline as total
assets grow, but brokers also appear to be offering discounts on
both trading commissions and advisory fees that are higher than
their firms suggest, Kennedy said.
He and several brokerage firm executives interested in the
bottom line said the study offers evidence for advisers to
refrain from heavy discounting. The number of households served
by the average adviser fell steadily from 165 to 156 between
2011 and the end of 2013, giving brokers ammunition to argue
that they are giving each client more attention and therefore
deserve full fees, they said.
In another cause for concern for securities industry
executives, the study found that the average client last year
was 61.1 years old, compared with 60.5 years old in 2011.
"The most plausible explanation is that advisers focus on
older clients because they typically have more investable
assets," Kennedy said. "But if they are not replenishing their
books with younger investors, it's a problem.
"To see the average client getting older by roughly six
months every year is certainly a long-term problem for the
On the plus side for the securities industry, the study
found success in converting clients from transaction-based
accounts that pay commissions to advisory accounts based on fees
as a percentage of assets. The percentage of fee-based assets in
client accounts grew to 31 percent in 2013 from 28 percent and
26 percent in 2012 and 2011, respectively, PriceMetrix found.
In a sign that such accounts can be more profitable than
traditional commissions, the average adviser generated 47
percent of his or her revenue from fees last year, up from 43
percent in 2011 and 45 percent in 2012. Average fee accounts per
adviser grew to 101 from 85 in 2011, and average revenue per
adviser grew to $578,000 from $537,000 in 2011.
The PriceMetrix study is based on its database of 40,000
brokers and 7 million investors at large and regional North
American brokerage firms. PriceMetrix does not work with
discount brokerages such as Charles Schwab Corp. and TD
Ameritrade Holding Corp.
(Editing by Matthew Lewis)