Skip to content
Thomson Reuters

The Financial & Risk business of Thomson Reuters is now Refinitiv. Visit
All names and marks owned by Thomson Reuters, including "Thomson", "Reuters" and the Kinesis logo are used under license from Thomson Reuters and its affiliated companies.

Wealth Management & Private Banking

The challenges facing retail wealth management

Patrick Kennedy

04 Oct 2017

Retail wealth management faces some tough challenges in the near future. Photography: Krishnendu Halder
Retail wealth management faces some tough challenges in the near future. Photography: Krishnendu Halder

Pricing pressures and weak penetration of Generation X and Y markets are just some of the challenges revealed in a report on the state of retail wealth management.

Even though assets under management (AUM) reached record highs last year, wealth management firms in North America continued to face difficulties in growing their revenues.

Find out more about Wealth Management Solutions

Advisors added fewer new accounts, and they had little influence over Generation X or Generation Y investors. Lower trading volumes, pressure on fees, and the scarcity of new relationships were also undercutting growth.

This meant advisor production, measured on a “same-store” basis, declined for a second consecutive year in the the most recent edition of The State of Retail Wealth Management, from PriceMetrix.

Watch video — Trends in Retail Wealth Management – Power of the Platform

On a more positive note, client relationships have become more broad-based, and it appears advisors are building stronger, deeper relationships.

New household relationships per advisor
One of the key drivers of asset and revenue growth is the addition of new client relationships. Over the past several years, advisors have added fewer new clients

The report is based on insights drawn from PriceMetrix’s proprietary database, representing 24 North American wealth management firms, with over US$5 trillion in AUM, more than 60,000 financial advisors, 10 million retail investors and 500 million transactions.

Find out more about Wealth Management Solutions

Price levels decline

The report said that price levels fell last year on both fee-based and transactional accounts. In fact, 2016 saw the largest single year decline in price levels that we’ve seen.

While advisors may feel pressure to cut their prices, our research has consistently shown that lowering prices doesn’t lead to faster business growth or a change in client attrition levels.

Two-thirds of the advisors in our research didn’t lower their price. Those advisors experienced the same client attrition rates, and opened more new accounts than those who did lower their price.

Advisors feeling pricing pressure should remember that financial advice is not a commodity.

So how should advisors navigate these waters?

  • Charge your clients appropriately and fairly. Advisors who deliver a premium service should charge a premium price.
  • Know the value of the advice you are giving and be prepared to explain that value to clients.
Advisor revenue growth 2016
Revenue growth for the median advisor was nil, but the top quartile of advisors managed to increase revenue by 26% on average, while the bottom quartile saw a year-on-year decline of 17%

Find out more about Wealth Management Solutions

Changing demographics

The wealth management industry is undergoing a fundamental demographic transformation.

Wealth management clients are getting older as the bulk of assets in the industry belong to baby boomers and the Greatest Generation, who lived through World War Two.

As these clients age, their portfolios aren’t growing as quickly as they once did.

At the same time, despite the considerable media attention they get, Millennials or Generation Y remain at 2% of industry assets in large part because they don’t yet have the means to invest.

Of more immediate concern, Generation Xers, who may be wealth management’s neglected generation, have shown no material increase in their share of industry assets over the past three years.

Advisors looking to grow their book should study the demographic concentration of their clients and find ways to diversify.

Generational AUM
Among all the challenges facing wealth managers, the lack of growth in assets from Generation Y, and especially Generation X, clients may be the most serious

Find out more about Wealth Management Solutions

PriceMetrix research has shown that higher growth advisors are not concentrated on one particular client age group; rather, they show higher levels of diversity across multiple generations.

Adding younger clients, particularly Gen Xers, is an important tactic to ensure consistent growth performance over time.

Fee-based accounts

Our research found that the transition to fee-based accounts gained momentum last year as more investors are paying advisors a percentage of their assets.

In fact, for the first time, fees made up the majority of revenues in 2016. That said, two-thirds of clients continue to maintain only transactional accounts.

Interestingly, almost a quarter of all wealth management clients actually hold both types of accounts.

Average AUM per advisor grew to a record $92 million in 2016
Average AUM per advisor grew to a record $92 million in 2016, up 6% from 2015, despite revenues per advisor decreasing for a second consecutive year – dropping 1% from $591,000 in 2015 to $583,000 in 2016

Find out more about Wealth Management Solutions

As relationships become increasingly complex, advisors should think about their pricing strategy at the ‘whole client’ level rather than product by product.

On the surface, while some 2016 results may seem disappointing, opportunities exist, and many advisors continue to achieve high growth rates.

The disparity in growth rates between top and bottom performing advisors suggests that emulating the behaviors of high growth advisors is more important than ever.

How is AI shaping wealth management in China? Winners and market views from U.S. Lipper Fund Awards Tuning up your business for PRIIPs regulation What wealth managers need to know about AI Insights from our annual wealth conference Sustainable Development Goals: Unlocking value in ESG investing? The digital future of wealth management Asset management trends in Europe spark lively debate Will active funds embrace performance-based fees? The buy-side answer to shrinking balance sheets