By targeting fewer but more significant clients, gravitating towards fee-based business and taking a more selective approach to client acquisition, advisors have become more productive in recent time. The sector should be "very pleased" with its performance in 2014, according to the CEO of PriceMetrix. But not all advisors fared well, and, as ever, industry challenges remain.

Editor's note: PriceMetrix said it found "no significant differences" between the US and Canadian markets - the results of its analysis therefore represent the combined North American market.

One of the main reasons why advisors have become more productive in recent years is because they are working with fewer clients, according to PriceMetrix's fifth annual State of Retail Wealth Management Industry report, according to which 2014 was an exceptionally strong year for the sector.

Drawing on its database of some 40,000 advisors, seven million investors and $3.5 trillion in investment assets, PriceMetrix has today reported that assets under management for the average advisor reached $97 million in 2014 while average advisor revenue surged 13 per cent to $655,000 and revenue on assets (RoA) rose to 0.69 per cent - the first increase since the start of the financial crisis in 2008.

Continuing a trend that set in a few years ago, the firm found that the average number of clients in an advisor's book fell from 156 in 2013 to 150 in 2014 as average client assets climbed from $562,000 to $628,000. Overall, advisors have trimmed back the number of clients they have by 10 per cent since 2011.

“PriceMetrix analysis has consistently shown there is a strong correlation between the number of clients an advisor manages and his or her RoA,” the firm said. “Advisors have historically improved their client loads by dropping smaller, less productive relationships. Advisors also appear to be showing more selectivity in attracting new client relationships."

Another factor contributing to higher productivity is that advisors are continuing to transition to fee-based business: Average fee-based assets rose from 31 to 35 per cent last year, while the percentage of fee revenue increased from 47 to 53 per cent. In line with this, advisors boosted fee pricing in 2014, with the average RoA on fee accounts inching up from 0.99 per cent in 2013 to 1.02 per cent.

“This is a particularly positive development, as it comes after several years of decline,” PriceMetrix said. "Even more positive for the industry, the increase was largely driven by price increases among the largest accounts."

Simultaneously, however, improvement in fee pricing has widened the gap in RoA between fee and transactional business, with the average transactional RoA now at 0.53 per cent.

Meanwhile, as the report notes, “business growth is not just a function of adding new clients but keeping the ones you already have,” and 2014 was a strong year in this regard, with client retention improving among two groups: priority clients and premium clients. (Priority clients are defined as those with $250,000 or more and premium as those with over $2 million).

Indeed, previously research suggests that advisors have intensified their focus on attracting older clients who typically have more assets and thus yield more revenue - a trend which itself raises significant challenges (see related findings here).  

In conclusion, “2014 was an exceptionally strong year for financial advisors and their firms,” although the industry of course continues to face certain challenges. Chief among them is, as mentioned above, the aging of both clients and advisors, and how the industry is reacting to this.

“Advisors and their firms simply cannot afford to overlook younger clients,” said Doug Trott, president and chief executive of PriceMetrix. “They need to devote a significant portion of their business development efforts to younger clients or their future growth will slow down, as our data clearly show."

Additionally, not all advisors fared well in 2014. Although median production growth was 10 per cent, this was largely concentrated in the top quartile of advisors; production declined by 15 per cent among the bottom quartile of advisors, leading to an “even wider gap than usual,” PriceMetrix said.