Advisory fees rise above 1% after bottoming in 2013

Report shows reversal of long downward trend in conjunction with increasing asset levels

Mar 30, 2015 @ 12:04 pm

By Liz Skinner

Fee-based pricing is on the upswing after falling for several years and landing under 1% in 2013, a new report shows.

Advisers charged an average of 1.02% on client assets in 2014, compared with 0.99% the previous year, according to a PriceMetrix Inc. report released Monday that analyzes transaction and account data of 40,000 advisers.

The amount advisers charge for fee-based accounts had fallen consistently each year since the practice management software firm began tracking the rate in 2009. That year, advisers charged an average of 1.2%, said Patrick Kennedy, co-founder of PriceMetrix.

The process of advisers transitioning clients from transaction-based pricing to fee models was one factor that likely had been putting downward pressure on fees for a number of years, Mr. Kennedy said.

“The data suggests advisers and firms are paying more attention to fees now, taking control and actively pricing services as opposed to basing them on what they think the market is pushing,” he said.

Fee business typically generates higher revenue than transaction-based pricing. Last year, transaction revenue on assets was 0.53%, according to the report.

Overall, average revenue on assets last year was 0.69%, the first annual increase since the beginning of the financial crisis in 2008, the report found.

In other good news for the advisory industry, last year client retention rates increased slightly, and average adviser revenue rose 13%, to $655,000. Additionally, average adviser assets grew 8% from the previous year, to $97 million in 2014, the report said.

Source: PriceMetrix Inc.

(More: Adviser 2.0: Managing growth)

The average number of clients that advisers work with fell about 4% to 150 last year, while the assets of the average client increased 12% year over year, to $628,000, the data found.

“Advisers are focusing on a narrower set of more-affluent clients,” Mr. Kennedy said. "It's a positive sign for advisers."

The rise in the number of automated advice platforms may be a factor in advisers successfully ridding their books of smaller accounts, he said.

“It helps advisers say good-bye to those clients, because there are viable service alternatives for them to send smaller investors [to],” Mr. Kennedy said, noting some firms are developing their own digital platforms for investors with fewer assets.

Of course, not all advisers are sharing in the success.

About 25% of advisers suffered production declines of 15% last year, the report found. That group included advisers with mostly transaction-based business and advisers who had been in the industry the longest, Mr. Kennedy said.

One troubling sign for the entire industry is that the proportion of new clients who are under age 45 has remained at 23% since 2011. A separate PriceMetrix report issued earlier this month showed that advisers with a significant portion of clients under age 45 grow at nearly twice the annual rate as advisers who serve older clients.

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