Mix masters? Advisers getting better at optimizing client rosters

Retail wealth managers had a tough year in 2011 — but it could have been worse. According to data from PriceMetrix Inc., a firm that provides practice management software to financial advisers, the average adviser's assets under management fell 7% to $74 million last year. Average production per adviser, however, was up 1% to $537,000 — reflecting the fact that advisers are working to optimize their client base, said PriceMetrix chief executive Doug Trott. “In a period of modest growth, advisers have improved their client mix,” he suggested. The data comes from the aggregation of more than 500 million transactions in about 1 million fee-based and 4 million transactional accounts holding assets of more than $900 billion, providing a fairly broad view of the wealth management industry. The decline in assets is largely by design, according to Mr. Trott, as advisers have been culling smaller, less profitable households from their business. “Advisers have a portfolio of clients, and the active managers shed their lower-performing clients and add higher-performing ones,” said Mr. Trott. Last year, the number of households served by the average adviser fell from 192 to 177 while the average amount of assets per household rose 1% to $417,000. The average number of new accounts opened fell from 68 in 2010 to 52 last year, and new assets were also down to an average $7.9 million, from an average $8.5 million. Mr. Trott said the data suggests investors are reluctant to move their assets in the face of prolonged market uncertainty. The ability of advisers to earn more managing fewer assets is largely due to their shedding smaller clients. The percentage of small households (less than $250,000 in assets) in the average adviser's client portfolio fell from 71% to 65% last year, while the average revenue per household increased 7% to $3174. “Advisers don't have unlimited capacity,” Mr. Trott said. “They understandably are focusing more on their larger accounts.” Less encouraging from an adviser's perspective is the weaker pricing on fee-based accounts, which continue to grow as a proportion of advisers' business. The average number of fee-based accounts per adviser rose 10% from 77 to 85 last year and fee-based assets as a percent of total assets rose to 26%, from 23%. The average return on assets for fee-based accounts, however, fell 2 basis points to 1.19%. The biggest reason for the fall in returns is that advisers are adding new fee-based accounts at lower prices than existing relationships. The average fee on new accounts opened last year was 1.06% — 2% higher than the previous year, but significantly lower than the 1.19% earned on all such accounts. “When markets are turbulent, advisers tend to lower their pricing. But when they do, they don't open more new accounts nor do they keep more of their existing accounts than usual,” said Mr. Trott. “Don't fall prey to guilt pricing.”