The fastest-growing advisors in 2012 are likely going to be those who can become more calculated and deliberate about the types of clients they do business with. According to a PriceMetrix report, “outperformers,” or those advisors from PriceMetrix’s database who saw the most growth in either assets, revenues or both in 2011, are adding more productive relationships to their books and dropping less productive ones. This will be just as true next year as it is today, says PriceMetrix, a Toronto-based solutions provider for retail wealth managers.
“Outperformers almost think of their book as a portfolio,” said Patrick Kennedy, co-founder and vice president of product and client management at PriceMetrix. “They’re willing to cut their losses on less attractive relationships, and they’re doing more due diligence on new relationships.”
According to the report, the outperformers, those in the top quartile for growth, closed accounts generating $734 in annual revenue on average, and opened new accounts generating average annual revenue of $1,533. For each account closed, these advisors were able to open 1.5 new accounts on average, compared to only 0.7 accounts for advisors in the comparison group, or those in the bottom quartile. But saying goodbye to less productive clients is not easy for advisors, Kennedy said.
“They’ve been taught their entire life to be a hunter and gatherer, and then to move to more of a catch and release mentality, it’s very difficult,” he said. “Those that are able to take that very scary leap leave themselves room for more focus.”
As part of this move to manage their books more actively, Kennedy said top advisors are also focusing on specific client types, and he expects the trend to continue. “The days of the generalist are starting to come to an end.”
That’s a specialist can bring more value and expertise to his or her client relationships than a generalist. Kennedy said these outperformers are targeting such groups as young doctors, small business owners or gay and lesbian clients. With these more focused, narrow books, they have more capacity to deal with and bring better services to the clients they work with. “Simply through you knowing more and being able to do more about a narrower area, you’re able to deliver that more efficiently.”
Overall, the outperformers increased their revenue by 34 percent in the last year, compared to a 4 percent decline in revenue for advisors in the bottom quartile. Assets were up 27 percent for outperformers from a year ago, versus an increase of 7 percent for the bottom quartile. The average number of new accounts per outperformer was 93, compared to 50 for the bottom quartile.
Kennedy said these numbers show that the fastest-growing advisors are using the current market turbulence as an opportunity. Many are likely taking advantage of those do-it-yourself investors who are feeling alone in the marketplace and looking to switch to an investment advisor. At the same time, a lot of investors are probably looking to switch advisors amid the turbulence, Kennedy said.
“It’s a time of introspection for the individual investor,” Kennedy added. “Certainly the account openings, the revenues and asset growth of the outperformers suggests that [the outperformers] did a pretty good job at converting that into new business for them.”
The PriceMetrix report also found that these top advisors are maintaining their pricing, even for more affluent clients. For outperformers, average return on assets was up 4 percent on transactional accounts and stayed the same on non-transactional accounts. Average assets in millionaire households were up 6 percent for outperformers, versus being down 2 percent for the comparison group.
“It’s a misconception that the affluent investor categorically demands deep discounts, an expensive misconception,” Kennedy said. “Affluent investors want and expect to pay for quality advice, just like anything else in their life.”
Kennedy said outperformers have less of a tendency to give discounts when the markets are falling. For those advisors that do this, it’s more difficult to then raise prices when the markets come back. PriceMetrix tracked transactional pricing through the 2008/2009 bear market, and found that the group that was discounting most then only came back to about half of their previous price level.
Kennedy said now’s not necessarily the time to raise pricing, but the successful advisors are going to be the ones who articulate clearly the value they are providing to clients and communicate with prospects and clients about how they get paid for that service. He recommends advisors market themselves as good communicators, able to navigate and stick to a long-term plan through markets like this.
“I think investors are desperate for advisors who are confident in their value proposition, and a big part of that confidence is conveyed in the way that they talk about pricing,” he said.
According to Kennedy, the ones that are in trouble are the ones that are saying they can get the investor above-market returns. As we wrote in December, it’s very difficult to beat the market, and advisors should be careful what they promise investors.