State of the Financial Advisory Business: 2008

Transcription

1 State of the Financial Advisory Business: 2008 Examining Trends in Business Growth and Investment Product Usage Summary 2007 Reuters

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3 Table of Contents List of Exhibits... Key Findings... Biographies... Objectives & Methodology... Executive Summary... Chapter One: Measuring the Size & Growth of the Advisory Business... A. Examining Growth Trends Across Channels... B. Drivers of Business Growth & Profitability... a. Business Development Goals... b. Client Wealth... c. Adviser Higher Education... Chapter Two: Examining Niche Market Advisers... A. Prevalence and Impact of Niche Market Focus... B. Identifying Key Niche Markets... C. Measuring the Demand for Adviser Support With Client Life Events... Chapter Three: Trends in Investment Product Usage... A. Investment Product Usage & Allocations By Channel... B. Client Wealth and its Impact on Adviser Use of Mutual Funds, SMAs, and Alternatives... C. Examining the Portfolios of Retiree-Focused Advisers... Chapter Four: Mutual Fund Market Share... A. Trends in Adviser Usage of Mutual Funds... B. Leading Mutual Fund Companies Adviser Market & Wallet Share... C. Mutual Fund Company Market Share By Adviser Channel... Chapter Five: ETF Market Share... A. Trends in Adviser Usage of ETFs... B. ETF Provider Market Share By Adviser Channel... Chapter Six: Annuity Market Share... A. Trends in Adviser Usage of Annuities... B. Annuity Provider Market Share By Adviser Channel... Appendices A. Advisor Survey State of the Financial Advisory Business: 2008 Table of Contents

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5 The Impact of Channel and Client Wealth on Advisory Business Growth The investment advisory business is undergoing a great deal of change. Business models are evolving as brokerage forces once driven by commissions, are now focusing on growing fee-based accounts. Many advisers, formerly dedicated to selling individual securities to a long list of investors, are now creating holistic financial plans for a select group of clientele. And, many of the clients that advisers have grown to know over years of helping them accumulate assets, are now seeking guidance for protecting those assets while generating an income stream in retirement. It s during this time of change that Reuters AdvicePoint TM and Sway Research are proud to introduce an annual in-depth study called The State of the Financial Advisory Business. The study is based on the Reuters AdvicePoint Top Advisers Survey a survey of more than 1,100 advisers with 273,000 clients and more than $300 billion of assets under management. This research brief, extracted from the full report, examines differences in the financial advisory business by channel, as well as the impact of client wealth on business growth. An important resource for advisory firms, the full 2008 report provides insights into the minds of today s advisers and analysis of the key drivers of advisory business growth, including business development goals and client focus. The study is also a valuable tool for investment product manufacturers, as the report features analysis of adviser usage of investment vehicles, including market share of specific mutual fund, ETF, and annuity providers. Measuring the Growth of the Advisory Business Included among the data points collected in the Reuters AdvicePoint Top Advisers 2008 Survey, were advisers total assets under management and number of clients each year from 2003 through Having these data points allowed Reuters AdvicePoint and Sway Research to analyze the growth of the advisory business, in terms of total assets under management and average assets per client each a key measure of business profitability. Compound annual growth rates were calculated for each of these measures across a range of adviser segments, including the following: Channel Client wealth Business development goals Education level Client focus (i.e. professional, lifestyle, cultural, or language group) The channel segments are as follows: Independent/Regional B/D Segment includes advisers from more than 200 broker/dealer firms, led by Ameriprise Financial, Raymond James, and LPL, and also includes a small group of advisers affiliated with banks and insurance companies National B/D Includes advisers affiliated with the following seven firms - A.G. Edwards, Edward Jones, Merrill Lynch, Morgan Stanley, Smith Barney, UBS, and Wachovia Securities RIA Features RIAs from 400 small firms spread out across the U.S. Wealth Manager Group consists of nearly 100 advisers with a minimum initial client investment of $2 million or more, representing more than 50 B/ Ds, banks, and trust companies Exhibit 1 provides a breakdown of the survey participants by adviser channel. Exhibit 1: Survey Group by Channel Wealth Manager RIA National B/D Independent/Regional B/D Source: Reuters AdvicePoint TM Top Advisers 2008 Survey Client Characteristics by Adviser Channel As illustrated in Exhibit 2, Wealth Managers, manage more assets on average - $1.3 billion than other channels, and maintain average client assets of $10.6 million. These corner-office types, State of the Financial Advisory Business:

6 work with clients that have an average total net worth of more than $30 million, and, not surprisingly, tend to invest more client assets into alternative products, such as hedge funds and private equity. Given their business model, Wealth Managers are expected to generate larger, more profitable client relationships than their peers. However, it is somewhat surprising that RIAs also possess significantly larger client relationships than advisers of Broker/Dealers. The more than 400 RIAs surveyed, manage an average of $1.27 million per client, which is 80% greater than the average for advisers from National B/Ds, and 166% above Independent/ Regional B/Ds. Interestingly, the net worth of the average RIA client is only about 18% greater than the average for National B/Ds, and 50% greater than that of Independent/Regional B/Ds. Thus, the data shows that RIAs are capturing far more wallet share from their clientele than B/D affiliated advisers (approximately 33% versus 20%). Not surprisingly, many major broker/dealers are now making a concerted effort to transform their advisers from a transactionbased model, to more of a holistic financial planning approach. Among the four channels, advisers from Independent/Regional B/Ds have the smallest books of business managing an average of just $185 million and the smallest relationships, maintaining average assets of $480,147 per client. The Impact of Client Wealth on Business Growth As the financial advisory business evolves, a greater focus is being placed on attracting and maintaining relationships with high net worth clientele. At some firms, advisers are being incented to pare back their books to a select group of their most wealthy clients, with the goal of deepening relationships and capturing greater share of wallet with this group. In fact, more than one-quarter of the advisers surveyed, indicated their primary business development goal is to attract only high net worth clients. In order to measure the impact that client wealth has on the success of an advisory business, advisers were segmented into the following four groups based on average client net worth: Less than $1 million $1 million to $5 million $5 million to $20 million Greater than $20 million Exhibit 3 summarizes the annual growth rates achieved by advisers in each of these client wealth segments. As one might expect, catering to high net worth investors leads to faster growth of assets, as advisers with average client net worth above $20 million, experienced average AUM growth of 24% from June of 2003 through June 2007, versus just 17% for advisers with average client net worth under $1 million. What one might not expect is Exhibit 2: Characteristics of Channel Segments Channel Average AUM Average per client total AUM June 2007 June 2007 ($mils) Independent/ Regional B/D $480,147 $185 National B/D $708,986 $224 RIA $1,274,839 $257 Wealth Manager $10,571,132 $1,343 Overall $1,147,260 $320 Source: Reuters AdvicePoint TM Top Advisers 2008 Survey 2

7 the dramatic scope of the difference 7% annual growth is a substantial difference in single year, and when compounded over a 30 or 40 career could make the difference between a mildly profitable enterprise and one that is wildly successful. Furthermore, just moving from clientele with an average net worth under $1 million to clients with between $1 million and $5 million can lead to considerably stronger asset growth. Advisers in this group generated 21% annual AUM growth a 4% increase over the under $1 million segment. Interestingly, the segment with the wealthiest clients, did not achieve the fastest growth in terms of assets per client during the period between June 2003 and This achievement belongs to advisers that have average client net worth in the $5 million to $20 million range, which saw assets per client grow by an average of 19% annually, versus just 10% for advisers in the under $1 million segment. Average assets per client for this group have more than doubled from $1.2 million in 2003 to $2.5 million in This may be a function of the growing gap between America s Haves and Have-nots, which has been widely reported in the media in recent years, and supported by data from the most recent Survey of Consumer Finances Report from the Federal Reserve. <1 1 to <5 5 to < Exhibit 3: Business Growth by Client Net Worth Average Annual Growth June June '07 $mn Assets Under Management Average AUM Per Client Source: Reuters AdvicePoint TM Top Advisers 2008 Survey Summary of Key Findings Wealth managers manage an average of more than $10 million per client, dramatically higher than any other adviser segment RIAS capture a substantially greater share of client assets than B/D affiliated advisers Client wealth plays a significant role in adviser success, as high net worth clientele leads to faster AUM growth and larger, more profitable relationships Terms & Conditions 1. Internal Use Only. Subscriber agrees that the Report may be used solely for its own internal use and benefit and not for the use or benefit of any other person or entity, including without limitation, subsidiaries, parent companies, sister companies, joint venture companies, affiliated companies and related companies. Subscriber acknowledges and agrees that the Report is being supplied on the condition that Subscriber (i) will use the information contained in the Report in the ordinary course of its own business (which will not include redissemination, recirculation or republication outside its own organization), (ii) will not transfer, retransmit, duplicate or resell all or part of the information contained in the Report; and (iii) will not store all or any part of the information contained in the Report for access by any third party. Subscriber further agrees not to create any derivative works (including databases) based on the Report or the information contained therein. 2. Permissible Use. Subscriber shall not re-write or otherwise use any portion of the Report to create original content for publication except as provided herein or with the prior written consent of Reuters Advicepoint. Notwithstanding the foregoing, the Parties agree and acknowledge that Subscriber shall be entitled to incorporate charts, graphs, and/or other images from the Report into Subscriber s presentations at public events, provided however, that Subscriber shall include on any display or presentation which contains such charts, graphs and/or other images, and in close proximity thereto, the following notice: Source: Reuters AdvicePoint,The State of the Financial Advisory Business: Reuters 2007/2008. All rights reserved. State of the Financial Advisory Business: 2008 Summary 3