Advisers see hefty return on assets in 2013

Still bullish despite shortfall from this year's forecast

By Jeff Benjamin

Dec 12, 2012 @ 12:02 pm (Updated 12:02 pm) EST

advisers

Financial advisers are predicting a stronger return on assets next year, despite falling short this year, according to the latest research from Russell Investments.

The results of the quarterly survey, released last Thursday, show that advisers expect 2013 will bring an 8.4% growth in ROA — a company’s ratio of revenues to assets under management.

The forecast is somewhat surprising considering that survey respondents, on average, said they expected to see a 7.6% return on assets this year, but only realized 7.2% growth in 2012.

Russell's Financial Professional Outlook survey, which concluded in the first week of November, includes responses from more than 200 financial advisers from 93 national, regional, and independent advisory firms.

“Return on assets is one important metric for goal-setting around business growth, alongside other key indicators such as recurring revenue, total revenue per client, assets under management per client and clients per full-time employee,” said Sam Ushio, practice management consultant at Russell.

“ROA provides valuable insight into the revenue efficiency of the adviser's asset base,” he added.

While ROA growth among fee-based advisers is primarily driven by new clients, increased pricing, performance, and moving cash off the sidelines, at the broker-dealer level the growth is coming from a transition away from commissions and toward fee-based advice, Mr. Ushio said.

The fact that survey respondents expect to increase ROA is a sign, according to Mr. Ushio, that they are focused on “developing deeper client relationships.”

“The survey said the number one strategy was to deepen the relationships with clients,” he added. “Transaction-based advisers weren't always as oriented toward the relationship, but what we're seeing now is the evolution of the average adviser because they're starting to get it.”

Among the advisers surveyed, 62% said they are focusing on deepening client relationships to help grow ROA across their businesses, and 58% also indicated that they are proactively seeking new clients.

“The survey results reinforce that many advisers are indeed seeking organic growth through meaningful client relationships, but those relying on prospecting to drive ROA should be cautious, as the incremental effort can often outweigh the benefits to an adviser's business,” Mr. Ushio said.

When asked which of their client segments they expect to see the most ROA growth from in 2013, 64% of advisers said it would be the clients in or near retirement.

Mr. Ushio said advisers understand that many wealthy investors tend to diversify by working with more than one financial adviser, but by strengthening client relationships an adviser can encourage clients to consolidate their assets.

“This has obvious benefits for the adviser in asset gathering, but it can benefit a client for their adviser to have the full picture of their financial situation,” he said. “Particularly for investors approaching or in retirement, it can be very valuable to have one, strong advisory relationship and one outcome-oriented plan centered on their goals and potential risks.”