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PriceMetrix

The Fountain of Growth: Demographics and Wealth Management

New PriceMetrix Report Looks at Effect of Youth on Advisor Revenue and Growth

March 9th, 2015, Toronto, ON – In a new research paper, PriceMetrix, a practice management and data services company, reports financial advisors are not targeting younger clients though they could, and probably should, because these clients will grow faster and give advisors a fundamentally sounder book of business. PriceMetrix’ data show an advisor whose book includes a significant portion of clients under 45 will grow an average of 14.1 percent a year with annual revenue of $890,000 compared to an advisor with an older book who has current revenue of $810,000 and an expected growth rate of 7.7 percent per year.

“Which book would you rather have, an aging group of clients or a younger, more dynamic mix?” asks Doug Trott, President and CEO of PriceMetrix. “Yet, today, most firms will treat and reward these two books the same. ”

Currently, the evidence clearly shows both advisors and clients are getting older. In its paper, PriceMetrix reports the average client is 62 and is aging faster than the overall population. “Without a course change, the average client will be 70 within the next several years,” noted Mr. Trott. Further, more than half of all investment assets are held by clients over 65, placing us on the precipice of the greatest wealth transfer in history.

PriceMetrix also finds the average age of advisors is 52 but 25 percent of them are at or near typical retirement age, setting the industry up for a second material wealth transfer.

“Advisors and their firms face a myriad of questions as they try to navigate and benefit from the enormous demographic changes occurring in the industry,” noted Mr. Trott. “Advisors should be asking how the age of their clients is affecting their growth and production while firms should be asking whether they have the right mix of advisors in terms of age and whether they are properly incentivizing advisors to target younger clients.”

Drawing on its database of nearly 40 thousand advisors and seven million retail investors, PriceMetrix finds advisors are not targeting younger clients. In fact, not even younger advisors are pursuing younger clients. The average client is ten years older than the average advisor, however, the age gap is much wider among younger advisors. The average client is anywhere from 16 to 28 years older than the average advisor under the age of 45. Advisors are targeting older clients because they are wealthier and because these clients will help advisors meet production and asset hurdles imposed on them by their firms.

Failure to attract younger clients, however, poses a considerable long term risk to both advisors and firms. Normalizing for an advisor’s age, PriceMetrix finds advisors with younger clients grow almost twice as fast over the long term as advisors with older clients. Additionally, for firms, older advisors grow more slowly than younger advisors. Growth among advisors declines rapidly between the ages of 30 and 40 before beginning a continuous, although more gradual, decline until the advisor hits retirement.

“The demographic lesson here is clear,” commented Mr. Trott. “In order to maintain growth, advisors and firms have to understand and take into consideration the age of both advisors and clients when they’re considering the proper mix of their businesses.”

In its report, PriceMetrix demonstrates the tradeoffs in terms of growth and revenue that advisors need to think about when they add demographics to their business development strategies. For example, 40 year old clients with $150,000 in assets will produce just $1900 in current annual revenue but will grow 7.2 percent a year. That compares to a 55 to 70 year old client with $500,000 in assets who will produce higher current revenue of $5100 but will grow just 3.8 percent a year.

“There are good reasons to avoid clients with less than $250,000 in assets,” said Mr. Trott, “but adding age to the mix can change an advisor’s thinking. He or she could justifiably decide to take on the 40 year old with fewer assets because that client will grow so much faster.”

Trading higher current revenue for longer term growth can still be unappetizing, even if the tradeoff makes sense. PriceMetrix’ data, however, show there are other significant advantages which should at least ease some of the pain. Revenue on Assets is 25 percent higher in books with younger clients. Further, younger books have a higher proportion of fee-based accounts.

About PriceMetrix
PriceMetrix is the first choice in practice intelligence solutions for retail brokerages in North America. We help wealth management firms enhance revenue growth, by enabling advisors to identify and action otherwise lost revenue opportunities. By combining industry know-how with powerful aggregated market data, we help our clients increase overall firm profitability.

PriceMetrix directly measures aggregated data representing 7 million investors, 500 million transactions, 1.6 million fee-based accounts, 7 million transactional accounts and over $3.5 trillion in investment assets. PriceMetrix combines its patented process for collecting and classifying data with proprietary measures of revenue, assets, and households to create the most insightful and granular retail wealth management database available today.

Founded in 2000 and headquartered in Toronto, Ontario, we service a notable range of retail wealth management firms within the United States and Canada. To learn about why our clients love us, please visit www.pricemetrix.com or call and email us at 1-866-955-0514 and info@pricemetrix.com.

Media Contacts
Jon Teall
212 317-8296
jteall@teallassociates.com