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Beyond the Baby Boom

Summer Strategizing

Key Trend in Wealth Management: Quality over Quantity

Risk Management, Meet Big Data

Can You Tell Who Will be an Outperforming Advisor?

The Value of Advice During Rocky Times

A New Year’s Resolution Worth Keeping: Resolve to be an Outperformer

The Gender Gap in Retail Wealth Management: Female Advisor Book Composition Suggests Women Have the Right Components for Success

Don’t Leave Me! Signs Your Clients May Not Be Invested In You

Creating Deeper Client Relationships Through Team Work

Recruiting Lessons from the Boys of Summer for the Wealth Management Industry

Beyond the Baby Boom by Patrick Kennedy, Chief Customer Officer

July 7, 2017

North America is experiencing seismic demographic change. Baby Boomers have been outnumbered in North America by Millennials while Gen X remains sandwiched behind these two giant generations. Like most industries, wealth management is being affected by these shifts. What does this changing landscape mean for wealth management? Here’s what our research uncovered:

Assets

Baby Boomers (1946-1965) now own half of the AUM controlled by North American financial advisors, up from 46% in 2013. The share of the Greatest Generation (born before 1945), which was equal to that of Baby Boomers three years ago, has fallen to 40%. Millennials (1981-1995) represent only 2% of assets managed by the full-service retail wealth management industry, although given their age and economic situation, this group does have fewer investable assets. Perhaps most troubling is the lack of growth in AUM from Generation X (1966-1980), which represent only 8% of advisor assets. Attracting this group of clients, many of whom have entered their peak earning and saving years, will be vital to the industry’s continued growth over the next 20 years.

Age

Both advisors and their clients are aging. The average age of retail wealth management clients is estimated to rise from 62 currently to over 70 within the next several years. At the same time, 53% of assets are currently held by clients over 65 years old, leaving us poised on the precipice of the greatest wealth transfer in history.

What will it take to attract younger investors and grow their assets over the long term? The question is central to all aspects of a wealth management strategy. Value proposition, product menus, service models, pricing, and digital advisory will all have to be addressed to ensure that leading firms can bring aboard the next generations of investors.

For access more of our research on the wealth management industry, visit https://www.pricemetrix.com/resource-center/insights-whitepapers/.

Summer Strategizing by Patrick Kennedy, Chief Customer Officer

July 20, 2016

For most wealth management professionals, the summer months are a quieter time of year. They provide an opportunity not only for relaxation but also reflection – a chance to think about where your business is and where you want it to be.
At first, the obvious answer to growing your business might seem to be acquiring new clients. Business growth, however, isn’t just a function of adding new clients but rather, keeping the ones you already have. Growing your business is more challenging if you are continually trying to replace clients and assets that have moved elsewhere. How can you grow your business by focusing on your existing clients? Here are a few things we discovered using our database of seven million retail investors, 500 million transactions and over $3.5 trillion in investment assets:
1) The deeper your client relationship is, the more likely your client is to stay. How many of your households have only one account with you? Our analysis finds that a single-account household has a probability of retention of 0.86 while a household with two accounts has probability of retention of 0.89. By contrast, a household with five accounts has a probability of retention of 0.94. If you think you have only a fraction of your client’s investable assets – for example only one spouse, or only non-retirement accounts, you should work to deepen those relationships.

2) While retention is higher among clients with fee and managed accounts compared to transactional accounts, it is clients with both types of accounts who have the highest likelihood of being retained. Our data suggest that clients prefer choice. And more and more affluent clients are choosing to invest using different types of accounts within the same relationship.

3) Value the service you are offering appropriately. Clients who are charged too much are less likely to stay with their advisor, but so are clients who pay a very low rate. Offering discounts to clients doesn’t guarantee that they’ll stay with you longer. Delivering against their service expectations (at a fair and reasonable rate) does. Clients aren’t cost conscious – they’re value conscious.
Where do you want your business to be in July of 2017? Or 2021? Take some time this summer to think about how you’ll get there by growing with your clients.
For more information on growing your business through client retention, read our whitepaper Stay or Stray.

Key Trend in Wealth Management: Quality over Quantity by Patrick Kennedy, Chief Customer Officer

June 9, 2016

The number of client relationships that an advisor manages has been in decline for some time. In 2009, the average advisor managed about 200 household relationships, and today that number is closer to 150. Some might look at that trend and suggest it is cause for concern for the full service wealth management industry – perhaps evidence that emerging channels such as robo-advice are stealing market share. But to fully understand the trend, you need to consider the depth or ‘quality’ of the relationships that remain. Advisors today work with fewer clients, manage more of their assets and service more of their needs. Advisors have chosen quality over quantity.

It’s easy to make the argument for quality over quantity as it applies to most things. And that holds true for the retail wealth management industry as one of the best ways for financial advisors to grow their business is to focus on creating deeper client relationships, rather than having a large number of smaller ones. A deep client relationship is one where a multitude of financial needs are met – through different products, services and account types. Depth of client relationships is a characteristic that is very highly correlated with retention, and ultimately how successful an advisory practice will be.

We discovered using our database of seven million retail investors, 500 million transactions and over $3.5 trillion in investment assets that the overall trend for the industry is an encouraging one. In 2015, we saw a record high in accounts per household, and a record low of ‘single account’ households. Both indicators have improved steadily over time, suggesting that clients are embracing more comprehensive wealth management solutions from their advisors.

One of the primary measures of relationship depth is the presence of retirement accounts in the household. The overall trend for the industry is an encouraging one. In 2015, 74% of retail wealth relationships included a retirement account, up from 69% in 2011, suggesting a higher tendency for clients to consolidate more of their wealth with fewer providers. As firms and advisors have evolved toward more comprehensive wealth management offerings, clients appear to embrace this change.

Becoming the primary advice provider to clients should be an important goal for advisors; those who achieve this status more often grow faster. Those same advisors who grew the fastest in 2015 (top quartile growth = 29%), have retirement accounts in 80% of their client relationships, compared to 69% of relationships for those who grew the least (bottom quartile growth = -21%).

If you are a financial advisor looking to grow your business, take a look at your book of business and see if there are relationships you can deepen. You will find that the quality of your relationships will improve your quantity of growth.

Risk Management, Meet Big Data by Patrick Kennedy, Chief Customer Officer

May 11, 2016

The compliance landscape of the wealth management industry is undergoing some significant changes. Regulators across the globe are introducing new rules in an effort to protect investors. Wealth management firms also want to protect investors to ensure strong, lasting relationships, maintain their brand, and avoid the expensive penalties that come with fines, litigation and complaints.

One recent and noteworthy example of these regulatory and compliance changes is the United States Department of Labor’s (DOL) fiduciary rule. The heart of the rule is an attempt by the DOL to ensure financial advisors are putting their clients’ best interests ahead of their own profits. The final ruling (over 1,000 pages in length) is complex to interpret and taxing to implement by the April, 2017 deadline. Canadian regulators are contemplating similar rules.

Many of the firms we work with have already invested considerable time and talent preparing for these changes. Several strategies have been considered and analyzed. Whatever the final strategic path firms choose, one thing is certain – this ruling affects almost every U.S. financial advisor, and a significant portion of client relationships. (According to our industry data, roughly one third of accounts are ERISA retirement accounts, and two thirds of client relationships have at least one retirement account.) It will also further exacerbate compliance departments that are already overwhelmed by current regulations.

Like other disruptive changes, there will be near term compliance requirements, and longer term strategic challenges. And like most complex problems, developing a solution will take a lot of time, talent, patience and help from specialist experts. At PriceMetrix, we are ready to help our clients and partners navigate this new terrain. You can learn more about our newest solution MRI (Monitor, Review and Identify) Analytics here.

No matter what your role, firm, or expertise, you must admit – it is a most interesting time to be a part of the wealth management industry.

Can You Tell Who Will be an Outperforming Advisor? by Patrick Kennedy, Chief Customer Officer

April 1, 2016

As the pre-season wraps up, baseball teams are narrowing their rosters and deciding which players are going to help them achieve success this season.

Now imagine you’ve been asked to hire an advisor for your wealth management firm and you’ve been given a great tool from the world of baseball – career stats on the top two candidates, Skip and Dusten. Who would you hire? Which advisor has the greatest prospect for future production? Choosing the best candidate may not be as hard as you might think. Using PriceMetrix’ aggregated industry data, here are some of the indicators of future top performers:

Not surprisingly, advisor production in a baseline period is highly predictive of production in five years’ time. At first glance it would seem that Skip would be favored in this category. But Dusten may have an advantage since not all production types are equal. Fee revenue is more predictive of future growth than transactional revenue. A point for Dusten.

Most advisors believe that the greater the number of high-asset households in a book, the better and our predictive model confirms that. But our analysis also found that having a large number of small households in a book can negatively affect an advisor’s business. While Skip has more large households, the high number of small ones will reduce his capacity, lower his service level, and ultimately lower his client retention, giving Dusten a growth advantage in the long run.

Advisors with deeper client relationships are predicted to have higher future production and a good measure of the depth of client relationships is the percentage of clients that have retirement accounts in an advisor’s book. Dusten has both more accounts per household and more retirement accounts overall.

The correct answer to the above question (who will be the bigger producer in five years, Dusten or Skip?), is a bit of a trick. Our models predict that each one will be a $1mm producer five years out. However, if choosing between the two today, Dusten would likely be the better candidate as his current production would make him a more cost effective recruit. Lower investment, faster growth. And this is the power of big data and the predictive model – when what I know today can reliably predict a certain outcome, and improve my decision-making.

There are, of course, no guarantees when it comes to predicting future performance. Some advisors will be successful even when the odds are against them. There are always exceptions, but those that play the odds will more assuredly outperform.

The Value of Advice During Rocky Times by Patrick Kennedy, Chief Customer Officer

February 1, 2016

The current state of the financial markets is top of mind for many. The topic is hard to escape and the message, whether delivered by television pundits or colleagues at the water cooler, appears to be at best, one of uncertainty – and at worst, one of doom and gloom.

So it’s no wonder that many investors are feeling anxious, if not panicked about their personal financial situation. The role of a financial advisor is both critical and varied during these times. Not only are you offering wealth management advice, but you are likely acting as a confidant, coach and psychologist as you try to soothe your clients’ nerves.

There are so many ways you can help your clients during this period. Most critically, be available and communicative. Your clients will likely have more of a need than ever to hear from you. They will want to know what is causing the market volatility, how it affects them and what they should do. Be prepared to answer their questions. Put their concerns in broad perspective.

Also, be consistent with how you value your services. Lowering your price isn’t the way to put your clients’ fears to rest. Clients will need you more than ever and you are probably working harder than ever. During the last significant market downturn, PriceMetrix identified a select group of advisors who were more deeply discounting their services – ‘Sympathy Pricers’ we called them. This group was no more successful at keeping or attracting clients, and their price never recovered, even after the markets did.

Sympathy pricing sends a message to your clients that your guidance is worth less when stock prices are falling, and that your value proposition is firmly anchored on portfolio performance. Your advice is worth more than that.

The current financial landscape isn’t easy for investors. But as you weather this market fluctuation with them, you will have an opportunity to keep them on course, put them at ease, and truly demonstrate your value.

A New Year’s Resolution Worth Keeping: Resolve to be an Outperformer by Patrick Kennedy, Chief Customer Officer

January 4, 2016

The start of a new year means many of us are resolving to be better versions of our 2015 selves. And while quitting smoking and more sit-ups are great goals to set for yourself, why not also resolve to be an outperforming advisor in 2016?

What is an outperformer?

Before you can visualize yourself as an outperformer, you have to know what makes an advisor an outperformer. PriceMetrix research[1] defines outperformers as advisors who have achieved significant growth over a relatively short period of time compared to their peers. And while this growth can be measured by revenue and book size, it also includes how the advisor values their services and the quality of relationships in their book.

How can you become an outperformer? Here are a few tips from the PriceMetrix Insights Report, The Anatomy of Outperformers:

Focus on growth, even in turbulent times: Despite 2015’s fluctuating markets, outperforming advisors focused on opening new and larger relationships. Outperformers do not change their pricing when the market is unstable. They know that the value of their advice doesn’t decline along with the markets. They are not defensive or apologetic.

Focus on quality, not quantity: Outperformers obsess over their capacity, ensuring they have enough of it to deeply service affluent clients who value their services. They don’t measure success in number of clients, rather number of clients deeply served. If you want to be an outperformer in 2016, transition smaller or inactive relationships to other service providers, so that they can be better served, and you can be more productive.

Transition to fee: To outperform, focus on transitioning more of your clients to fee-based products and away from traditional transaction-based ones. Growing your fee business will help your practice scale. The act of transitioning shines a light on the quality and value of your advice. And clients who pay in fees rather than for transactions, stay with their advisor longer.

New Year’s resolutions are easier made than kept. You have to be willing to work hard all year. But much like quitting smoking or losing weight, the positive benefits of becoming an outperforming advisor will be long term and impactful, for both you and your clients.

Good Luck. And Happy New Year.

[1] PriceMetrix Insights – The Anatomy of Outperformers, December 2011

The Gender Gap in Retail Wealth Management: Female advisor book composition suggests women have the right components for success by Patrick Kennedy, Chief Customer Officer

December 4, 2015

The number of women who are the primary income earners for their households continues to grow with women comprising 47 percent of the American labor market. Yet, by comparison, only 12 percent of North American financial advisors are women. While the low percentage of female advisors raises a number of questions about gender in the wealth management industry, we were curious to see if male and female advisors differ in the types of clients they attract.

To examine this we used PriceMetrix aggregated data representing 10 million retail investors, over $4 trillion in investment assets. The results were published in our Flash of Insight, Is There a Gender Gap in Retail Wealth Management. Here are a few things we discovered:

Female and male advisors are strikingly similar in the proportion of assets they hold in fee and managed products with the median figures for female and male advisors at 21% and 22%, respectively. Where we found they differ more is in their client composition.  Female advisors tend to have more high asset relationships (defined as households with more than $250,000 invested) and fewer small relationships (those with less than $250,000). The typical (median) female advisor has 56 large household relationships and 72 smaller relationships. The typical male advisor has 51 large households and 78 small households. Not surprisingly, then, median household assets is higher among female advisors ($174,000) than male advisors ($152,000). And as PriceMetrix has demonstrated in a number of Insights papers, a higher proportion of larger relationships increases an advisor’s growth trajectory. Consequently women advisors are on a faster path toward success.

Another way in which female and male advisors differ is in the gender mix of their books.3 The typical female advisor has near gender parity in her book, with a median of 51 percent of clients who are themselves female. By contrast, the typical male advisor has 44 percent female clients – a difference of 7 percent between female and male advisors. Given that women are making up more of the workforce and an increasing portion of the investor market, female advisors may again have a greater growth trajectory.

Ultimately, neither X nor Y chromosomes determine the likelihood of an advisor’s success; the advisor does. Having the right insights and analytics in-hand are crucial to both. At the same time, even though women currently account for a small portion of financial advisors, they seem to be in an excellent position for remarkable growth.

 

Don’t Leave Me! Signs Your Clients May Not Be Invested In You by Patrick Kennedy, Chief Customer Officer

November 12, 2015

A financial advisor’s ability to retain clients is key to a successful business.  Our data show a strong correlation between client retention and business growth.  Pretty simple when you think about it:  growing a practice becomes a lot harder if you are constantly trying to replace clients and assets that have moved elsewhere.  Turns out, keeping your clients is a pretty good business strategy!

But how can you tell if your clients will stay or stray?

Using PriceMetrix’ aggregated data, we uncovered  a few signs that your client relationships may be in trouble:

  • Is the honeymoon over? Our research indicates that the probability of keeping a client in the first year is high (0.95 at 12 months) but the probability of retention decreases between 12 and 48 months to 0.74. It appears that it is during this time that clients determine whether the advisor relationship meets their needs, and if not, they decide to leave. Around the 48-month mark, retention tends to stabilize at 0.74 and 0.70 at 60 months. This suggests that clients who have remained with their advisor for five years appear to be in it for the long haul.Keeping these milestones in mind, you should redouble your efforts to demonstrate the value you provide during the critical first-year to fourth-year time period. The honeymoon won’t last forever so keep your clients engaged.
  •  Your relationship is shallow: Not surprisingly, the more your client is committed to you, the less likely they are to leave. You can measure the depth of your client relationships in several ways.  Two easy ones are:
  1. The number of accounts a household has with you. The probability of a single-account household staying with you is 0.86 while a household with five accounts has a 0.94 probability of retention.
  2. The presence of retirement accounts. Households with two or more retirement accounts have a .94 probability of being retained compared to households with less than two at .86.

If you feel your client has investments elsewhere, try to increase your share of their investable assets. It will further solidify your relationship with them and increase the likelihood of retention.

Invest time and energy in the right clients and they will be invested in you. You can then turn those great client relationships into a great business.

For more on these, and other ideas about how client retention can affect your business , read Stay or Stray: Putting Some Numbers Behind Client Retention.

Creating Deeper Client Relationships Through Team Work by Patrick Kennedy, Chief Customer Officer

October 14, 2015

For financial advisors, working as part of a team is more popular than ever, with 55% of advisors working within some sort of team-based arrangement. And that number is growing – there are 25% more team-based advisors today than there were in 2012. Team-based wealth advice has clearly become an important part of the wealth management landscape. With the popularity of teams on the rise, we thought it was time to take a look at whether and why teams are more effective than sole practitioners at growing their practices and servicing their clients.  You can find the results in our latest research, A Winning Formula: Teams in Retail Wealth Management.

To perform the study, we examined more than 40,000 financial advisor practices from our PriceMetrix industry dataset.  The insights we uncovered will help advisors and their firms gain a concrete, measurable perspective on the benefits of working together in team-based practices.

One of the benefits of teaming our data uncovered is deeper client relationships as clients of teams demonstrate greater willingness to consolidate more of their financial relationships than those of sole practitioners. Two primary measures of relationship depth are the number of accounts held by a household with an advisor and the presence of retirement accounts in the household. Our research found that clients who invest with a team have 10% more accounts per household, and are 3% more likely to have their retirement account serviced as part of the relationship.

Deeper relationships typically result in higher levels of productivity for two reasons:

1) As more financial needs are met, more value is delivered to the client, and

2) Those who act as the ‘primary’ financial advisor to an end client often achieve that status by delivering more value than other providers₁

Deeper relationships usually mean that clients stay longer with their advisor (or in this case, team). Indeed, our data show that teams have lower rates of client attrition than sole practitioners.  Consequently, rather than continually trying to replace clients that have moved elsewhere, teams are able to build on a strong and stable base of deep relationships, resulting in faster growth.

Deeper client relationships are just one of the ways our study shows that teams are better for clients, and better for you. To find out more about the quantifiable benefits of teaming in retail wealth management and whether it’s right for you, read A Winning Formula: Teams in Retail Wealth Management.

1 PriceMetrix Research: “Retirement Accounts: Good for your Clients, Good for You”, 2012

Recruiting Lessons from the Boys of Summer for the Wealth Management Industry by Patrick Kennedy, Chief Customer Officer

September 8, 2015

With the race for the pennant heating up, it’s hard to avoid talk of baseball and its endless statistics. This application of statistics to baseball was made famous by the book Moneyball: The Art of Winning an Unfair Game by Michael Lewis which was made into a movie, starring Brad Pitt as Oakland A’s general manager Billy Beane. A central question of both the book and the film was: how could a small-market, small-budget baseball team like the Oakland A’s compete against teams from larger markets that had the resources to pay top dollar for superstar players?

The answer, in brief, was to challenge conventional wisdom and the intuition of baseball experts about how to predict future success and build a winning baseball team. The Oakland A’s conducted a data and analytics-driven exercise. Using statistical analysis, the A’s identified player statistics that were most predictive of winning baseball games (and a winning team was one that baseball fans paid to see). Some of the metrics that baseball insiders valued – such as runs batted in and bases stolen – were naturally priced high in the market for baseball talent. They were also mediocre predictors of games won. At the same time, other metrics – such as on-base percentage and slugging percentage – were more predictive of winning games, yet were underpriced. By targeting overlooked players who scored well on underpriced metrics, the Oakland A’s were able to build a winning baseball team less expensively.

Does the Moneyball revolution in baseball have anything to teach retail wealth management? To be sure, there are a number of high-level similarities between the two. Highly-ranked talent has proven particularly mobile, often moving from team to team (or firm to firm, in this case).  As a consequence, recruiting top talent has become an increasingly expensive proposition: in the case of the retail wealth management industry, it is not uncommon for high-performing advisors to be offered a multiple of two times their annual production to join a new firm. An entire cadre of recruiters that focus exclusively on financial advisors exists, and news of high-profile advisors moving from one firm to another has become a common occurrence. A recent Reuters report noted that even in an era of tight budgets, “brokerages are often willing to pay top dollar for advisers with significant client assets.”¹

Like professional baseball, however, the payoff for the hiring firm (or signing team) remains uncertain. With incentives based upon some combination of past performance and future performance, the payoff is difficult to foresee; and with prices getting higher and higher, selecting the right talent is more important than ever.

A brokerage industry veteran recently observed that the economics of recruiting advisors “has gotten to the point where it’s very difficult to continue to make money.” But still, “you have to do it from a competitive standpoint.” Some hires, however, turn out to be based on a “bad assumption” about future production, which is obviously detrimental to the business.²   The corollary for recruiting is to direct their recruiting resources to advisors with the greatest prospects for outperformance, and for advisors to concentrate their time, a scarce resource, on those factors that drive outperformance.

PriceMetrix  wanted to know if statistical analyses could be deployed, much as they are in baseball, to help them ensure – rather than simply assume – that they are recruiting the right candidates and allocating resources to those advisors with the greatest potential. Our research confirmed that analytics can indeed be used to gain an informed advantage in recruiting and development.  And we also identified the specific characteristics that are most predictive of future success:  The OPS of wealth management!

The answers, which can be found in our whitepaper, Moneyball for Advisors, can assist recruiters in identifying those candidates most likely to add to the future growth of the firm. They can also assist managers and advisors by highlighting the attributes most predictive of future growth in an advisor’s book. These insights can help advisors and managers take action now to best achieve breakaway growth and hit it out of the park.

1 Ashley Lau, “Hard Times at Brokerages Spell Good Times for Headhunters,” Reuters, October 16, 2012.

2 Tom Stabile, “Wirehouses Will Take Fight to Indies: Exec.” Fundfire, October 23, 2012.

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