Coronavirus Crisis Is Putting Client Relationships to the Test: McKinsey

Client attrition is likelier to be higher in the year ahead as the pandemic has affected clients disproportionately; many entrepreneurs have suffered both business losses and portfolio losses. Passive advisors who are reluctant to step up and serve their clients will see more of them leave, PriceMerix said.

Some advisors will do better than other in retaining clients, according to the report. This comes down to how much time advisors can devote to clients with whom they have forged deeper relationships by serving them more holistically — advisors are now likelier to be the main advice provider for the clients they work with.

Between 2015 and 2019, the number of accounts per household served by an advisor grew from 2.7 to 3.1. And during the same period, the percentage of households with retirement accounts went from 65% to 72%.

The fewer clients demanding an advisor's time, the more attention each one will receive. PriceMetrix said this dynamic is particularly important in periods of market uncertainty, like the present.

Wealth management pricing has dropped steeply in recent years, tempering market performance-related revenue growth, according to the report. Last year, something like a new normal in aggregate price levels emerged. Annual fees for new accounts of households with between $1 million and $1.5 million invested averaged 1.01%, essentially flat since 2017 and down from 1.07% in 2015.

Pricing on both existing and new accounts continues to decline, the report said. However, new account pricing stability suggests that the two will converge sooner than later.

How will advisors' income look following recovery from the current crisis?

PriceMetrix found that 17% of advisors lowered their prices during and after the 2008 financial crisis. Following recovery, they increased prices, but these stabilized at the midpoint between pre-crisis levels and the bottom. These "sympathy pricers" followed the market down, but hesitated to reset prices as quickly when markets trended upward.

In 2020, PriceMetrix noted, advisors earn significantly more revenue in the form of asset-based fees than they did in 2008. So, as markets retreat, advisors' income will, too.

One drawback — among several benefits — of fee-based accounts, it said, is that advisors will likely provide much more research, communication and guidance during the crisis, but will actually be paid less.

— Check out How an Advisor Handled 2 Tough Client Cases in Florida's Tourism Mecca on ThinkAdvisor.