Top Wealth Managers Quarterly Pulse Part 1: Healthy Again

Growth Sources and Expectations

On average, firms added 28 new clients to their roster of 263 existing clients. At the same time, they lost on average 10 clients due to natural attrition or client dissatisfaction, resulting in a net total of 281 clients at the end of 2010. To put those numbers in perspective, gross percentage growth in clients was 11%, while net growth was 7% in the number of new clients. The fact that 11% growth in clients resulted in 13% growth in AUM suggests that firms are gradually upgrading their client base—that is, new client relationships are, on average, larger than existing client relationships.

Revenue Grows  

The growth in revenue in 2011 has rekindled ambition across the industry and firms are projecting an increase in revenue of between 15.8% for the mid-sized firms to 19.7% for the largest firms. Firms with less than $500 million in AUM are projecting 17.6% growth

in revenue. This optimism is not unfounded considering the results from 2010 but it is interesting that the largest firms are projecting the fastest growth.

Mathematically, large firms' size should make it more difficult for them to grow by the same percentage as the small firms. For example, one $10 million AUM client alone can create 5% growth for a firm with $200 million in AUM, while a $2 billion-in-AUM firm will need 10 such new clients.

Historically though, we have observed this phenomenon in most years since 2003: The largest firms are growing faster than the rest of the industry. In 2010, for example, the largest firms grew by 21.0% compared with 16.8% for the smallest firms.

A significant part of the size advantage of the largest firms is their ability to attract the largest clients. The advantage is exponential—while the smallest firms work on average with clients who had $1.5 million in 2010, mid-sized firms worked with clients who had a little over $3 million in AUM and the largest firms worked with clients who had well over $12.6 million. Larger client relationships allow firms to leverage the fixed cost of creating certain capabilities, such as research, tax expertise, etc., and allow for a more team-centric service model utilizing various levels of professionals. From a marketing perspective, the larger relationships are good reference accounts and result in referrals that are similarly large in size.

The size of the typical client relationship is one of the key drivers of productivity (client service model and the efficiency of implementing that model being the other two) and therefore it is no surprise to see that large firms have advantage there too. The firms with over $1 billion in AUM had $835,984 in revenue per client and $436,437 in revenue per staff, compared to $476,236 in revenue per client and $233,360 in revenue per staff for the smallest firms.

It must be noted however that this survey did not collect actual revenue information for the participants. The revenue levels were approximated based on the AUM of the firm, the size of the typical relationship and average pricing data.

Look for Top Wealth Managers Quarterly Pulse Part 2: Recruiting Picks Up, and the quarterly rankings of the 100 Top Wealth Managers next week in the Inside Wealth Management enewsletter.

We want to remind RIA firms that the annual Top Wealth Managers survey is open now through May 10. Click here to take the annual survey. Participation in the annual edition is the first step to inclusion in the Top Wealth Managers rankings. The AdvisorOne Top Wealth Managers rankings are used extensively throughout the industry by clients and professionals alike. We announce the Top Wealth Managers surveys in the Inside Wealth Management enewsletter. Subscribe (at no cost) here, to see when they are underway so you can participate.