NO­TABLE CHANGES

Al­though there’s lit­tle move­ment in the over­all num­bers, a closer look at ad­vi­sors’ met­rics in the four dis­tri­bu­tion chan­nels in­cluded in the Re­port Card se­ries re­veals the fi­nan­cial ser­vices sec­tor is in flux

Investment Executive - - CONTENTS - BY JAMES L ANGTON

There’s lit­tle move­ment in ad­vi­sors’ over­all num­bers, but a closer look re­veals a fi­nan­cial ser­vices sec­tor in flux.

at first blush, the re­sults of this year’s Re­port Card se­ries re­veal a re­tail in­vest­ment in­dus­try that ap­pears to be re­mark­ably sta­ble. Yet, much like the prover­bial duck that looks calm on the sur­face but is pad­dling fu­ri­ously be­low the wa­ter­line, that head­line sta­bil­ity masks some sig­nif­i­cant shifts in the busi­ness’s var­i­ous dis­tri­bu­tion chan­nels.

In­vest­ment Ex­ec­u­tive’s ( IE) an­nual Re­port Card roundup demon­strates re­mark­able con­ti­nu­ity in many of the in­dus­try’s ba­sic de­mo­graphic char­ac­ter­is­tics. For ex­am­ple, the aver­age age of all the ad­vi­sors sur­veyed this year rose by barely a year, to 50.5 years old from 49.3 in 2016. Sim­i­larly, the aver­age ten­ure in the in­dus­try rose by al­most a year to 20.5 years from 19.7 years in 2016.

Th­ese small in­creases sug­gest that the ba­sic makeup of the over­all sur­vey pop­u­la­tion re­mains rel­a­tively con­sis­tent from one year to the next. There have been no big shifts — such as a sud­den in­flux of rookie ad­vi­sors or a wave of re­tire­ments — that would show up as out­sized or un­ex­pected changes in th­ese met­rics.

This same con­ti­nu­ity ex­tends to the aver­age ad­vi­sor’s ten­ure with his or her cur­rent firm, which rose by al­most a year to 12.2 years from 11.5 years. This slight rise in­di­cates that most ad­vi­sors are stay­ing put at their cur­rent firms and there’s not a great deal of poach­ing or ad­vi­sors jump­ing from firm to firm.

At the same time, the re­sults of IE’s Re­port Card se­ries do re­veal one no­table de­mo­graphic dif­fer­ence vs the pre­vi­ous year — and it’s a de­cid­edly pos­i­tive change. This year, there’s a greater per­cent­age of women showing up in IE’s ad­vi­sor sam­ple. In fact, 21.7% of the ad­vi­sors sur­veyed across all of IE’s Re­port Cards were fe­male, up from 19.5% in last year’s sur­vey. Fur­ther­more, the per­cent­age of fe­male ad­vi­sors was higher than it was last year in three of the four dis­tri­bu­tion chan­nels in IE’s Re­port Card se­ries.

The lone ex­cep­tion to this trend is the bro­ker­age busi­ness. Not only does the bro­ker­age chan­nel field the small­est pro­por­tion of fe­male ad­vi­sors — at just 13.5% — but it’s also the only dis­tri­bu­tion chan­nel ex­pe­ri­enc­ing a de­cline in that de­mo­graphic over the past year, with the pop­u­la­tion of fe­male ad­vi­sors in the sur­vey se­ries drop­ping from 14.6% in 2016.

For the full-ser­vice and mu­tual fund deal­ers, the banks and in­surance agen­cies, the per­cent­age of fe­male ad­vi­sors rose year-over-year. By far, the banks con­tinue to boast the high­est pro­por­tion of fe­male ad­vi­sors, at 45.3%, an in­crease from 42.2% last year. The per­cent­age of women whom IE sur­veyed this year also ticked up­ward in the in­surance busi­ness (to 20.5% from 17.1%) and among the fund deal­ers (to 17.6% from 14.3%) com­pared with 2016. Out­side of the bank­ing busi­ness, fe­male ad­vi­sors con­tinue to ac­count for a clear mi­nor­ity of the in­vest­ment in­dus­try’s front-line per­son­nel — but the over­all trend may be to­ward greater gen­der equal­ity.

Turn­ing to some of the aver­age ad­vi­sor’s ba­sic fi­nan­cial met­rics, the head­line data again por­tray rel­a­tively lit­tle change yearover-year. For ex­am­ple, IE’s re­search found aver­age as­sets un­der man­age­ment (AUM) for the en­tire uni­verse of sur­veyed ad­vi­sors to be more or less un­changed from last year, at $78.5 mil­lion vs $78.3 mil­lion in 2016. This stag­na­tion in aver­age AUM holds even as the num­ber of client house­holds the aver­age ad­vi­sor re­ports serv­ing has crept up­ward a bit to 282.3 this year from 270.3 in 2016.

Yet, this flat read­ing in aver­age AUM for the re­tail in­vest­ment busi­ness over­all is mask­ing markedly di­ver­gent ex­pe­ri­ences for the dif­fer­ent dis­tri­bu­tion chan­nels in the in­dus­try. For ex­am­ple, ad­vi­sors at bro­ker­ages and in­surance agen­cies are en­joy­ing an in­crease i n aver­age AUM year-over-year — al­though the AUM data for in­surance ad­vi­sors is no­to­ri­ously volatile, given small sam­ple sizes and the sec­ondary sta­tus of the in­vest­ment busi­ness for many of th­ese ad­vi­sors. In con­trast, aver­age AUM dropped no­tably for bank branch-based ad­vi­sors and, to a lesser ex­tent, fund dealer ad­vi­sors.

No­tably, ad­vi­sors at bro­ker­ages have ex­tended their lead de­ci­sively over their bank branch-based coun­ter­parts in the race for the lead in aver­age AUM.

In last year’s sur­vey, the con­test was much closer, with the aver­age ad­vi­sor at a bank branch re­port­ing $95 mil­lion in AUM vs $113.3 mil­lion for the aver­age bro­ker­age ad­vi­sor. This year, though, the aver­age bro­ker­age ad­vi­sor re­ported $129.7 mil­lion in AUM vs the aver­age bank branch-based ad­vi­sor’s drop in AUM to $85.2 mil­lion.

Var­i­ous fac­tors may help to ex­plain this shift, in­clud­ing the fact that bad pub­lic­ity sur­round­ing cer­tain sales prac­tices at the banks ear­lier this year may have driv- en some clients away from bank branch­based sales forces. Al­though map­ping the de­cline in bank branch-based ad­vi­sors’ AUM vs the rise in bro­ker­age ad­vi­sors’ AUM defini­tively is dif­fi­cult, there is a con­sid­er­able shift in the AUM pic­ture for both of th­ese ad­vi­sor pop­u­la­tions.

Ad­vi­sors at fund deal­ers also saw aver­age AUM de­cline year-over-year, but the dip in their aver­age AUM was more mod­est than the drop for bank branch-based ad­vi­sors’ AUM, in both ab­so­lute and rel­a­tive terms. Still, this lat­est fall-off in aver­age AUM among fund dealer ad­vi­sors to $36.6 mil­lion from $39 mil­lion in 2016 leaves th­ese ad­vi­sors in a dis­tant third place for aver­age AUM.

Look­ing at the data in terms of ad­vi­sor pro­duc­tiv­ity (as mea­sured by AUM per client house­hold) rather than the dis­tri­bu­tion chan­nel re­veals some con­flict­ing trends. For ex­am­ple, the top 20% of ad­vi­sors across all four dis­tri­bu­tion chan­nels re­ported an AUM in­crease this year on aver­age. Over­all, the top 20% re­ported $177.6 mil­lion in AUM, up from $171.7 mil­lion in 2016. Con­versely, the AUM of the re­main­ing 80% of ad­vi­sors de­clined yearover-year to $53.8 mil­lion from $55.6 mil­lion in 2016.

The data also show that the aver­age num­ber of client house­holds be­ing served by both the top 20% of ad­vi­sors and the re­main­ing 80% rose a bit over the past year. Al­though the top-per­form­ing ad­vi­sors serve about half as many ac­counts as the re­main­ing 80% of ad­vi­sors, the aver­age client house­hold ros­ter of the top per­form­ers still was a bit heftier this year, ris­ing to 144 from 133 dur­ing the past year.

Among the re­main­ing 80% of ad­vi­sors, client num­bers also rose year-over-year to 278 house­holds from 239 house­holds.

In ad­di­tion, ad­vi­sor pro­duc­tiv­ity was down slightly year-over-year for both the top per­form­ers and the re­main­ing 80% of ad­vi­sors. For the top 20%, aver­age pro­duc­tiv­ity dropped be­low the $1.5 mil­lion mark this year and dropped be­low the $240,000 level for the re­main­ing 80% of ad­vi­sors.

This stark dif­fer­ence in pro­duc­tiv­ity be­tween top per­form­ers and the re­main­ing 80% of ad­vi­sors also is ev­i­dent in the trends in ac­count dis­tri­bu­tion data. For ex­am­ple, the aver­age top per­former re­ported that only about 9.5% of his or her book is de­voted to ac­counts worth less than $250,000, down from 13.3% last year. At the same time, the top 20% of ad­vi­sors re­ported that al­most half (47.3%) of their ac­counts are worth more than $1 mil­lion, up from 43.3% in 2016.

In con­trast, for the re­main­ing 80% of ad­vi­sors, just 10.3% of their ac­counts now are worth at least $1 mil­lion, whereas al­most half (47.5%) of this ad­vi­sor seg­ment’s ac­counts are worth less than $250,000.

An­a­lyz­ing the ac­count dis­tri­bu­tion data in terms of dis­tri­bu­tion chan­nel, slightly more than a third (34.2%) of the aver­age bro­ker­age ad­vi­sor’s book is de­voted to ac­counts worth at least $1 mil­lion. In con­trast, less than 8% of fund dealer ad­vi­sors’ and bank branch-based ad­vi­sors’ ac­counts lie at this rar­i­fied level.

In­stead, the sin­gle largest ac­count cat­e­gory for fund dealer ad­vi­sors is the sub$100,000 ac­counts, which com­prise 28.7% of the aver­age fund dealer rep’s book vs just 8% for bro­ker­age ad­vi­sors and 17% for bank branch-based ad­vi­sors.

Th­ese trends in AUM and ac­count dis­tri­bu­tion also flow through to ad­vi­sors’ bot­tom lines. This year, just 4% of bro­ker­age ad­vi­sors re­ported earn­ing less than $100,000 a year, down from 6.5% in 2016. By com­par­i­son, 45.4% of bank branch­based ad­vi­sors and 20.4% of fund dealer ad­vi­sors re­ported earn­ing less than $100,000 an­nu­ally. Over­all, 22.1% of the ad­vi­sors in IE’s Re­port Card sur­veys re­ported earn­ing less than $100,000 a year.

At the same time, bro­ker­age ad­vi­sors ac­counted for the lion’s share of the in­vest­ment in­dus­try’s top earn­ers this year: 10.5% of bro­ker­age ad­vi­sors re­ported they earn more than $1 mil­lion a year, com­pared with just 2.1% of fund dealer ad­vi­sors. No bank branch-based ad­vi­sors re­ported earn­ing more than $1 mil­lion an­nu­ally. In­surance ad­vi­sors came in a close sec­ond, with 9.5% of th­ese ad­vi­sors claim­ing that they earned more than $1 mil­lion a year.

T here’s a no­table, de­cid­edly pos­i­tive de­mo­graphic change: A greater per­cent­age of women ad­vi­sors in the sur­vey sam­ple

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