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Advisors Grow AUM, But See Margins Shrink

For every dollar of AUM, 71 basis points in revenue were generated, down from a recent peak of 78 bps.

Across the financial advice industry, median assets under management per client climbed 6.8 percent last year, according to a benchmarking study by TD Ameritrade Institutional, but profit margins are down. While the typical firm grew assets under management by 19.9 percent in 2017, compared to 13 percent the year before, profit margins were pinched by additional compensation costs and infrastructure reinvestment. Margins stood at 19.7 percent last year, down nearly 5 percentage points from the 2016 margin of 24.4 percent.

In fact, participants in the study reported that for every dollar of AUM, 71 basis points in revenue were generated, down from a recent peak of 78 bps. Researchers attribute this to an erosion of pricing power driven by pricing exceptions. Remedies suggested were adding “an additional layer of approvals for pricing exception requests” and better articulating the value generated by advisors for clients.

Although market tailwinds helped advisors, the research attributes only two-thirds of AUM growth to the bull market. Firms are doing a better job of attracting clients. Revenue growth was up, doubling the 2016 numbers, to hit 15.8 percent.

Productivity was also up. Looking at revenue per team member, the researchers found industry professionals generated $225,819 per individual in 2017. The previous year saw that same number at $202,056.

Advisors expect continued growth in 2018, though at a slower rate.

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