Advisor Productivity Falling Across the Board
If your take-home pay has been on the downswing this year, you’re not alone.
Annualized production per broker fell industry-wide in the second quarter after a disastrous first three months of the year, with average revenue off from 1% to 7% across the top five U.S. broker-dealers as measured by number of advisors.
According to brokerage firm executives, the trend is unlikely to improve any time soon. The culprits: a shift to lower-cost passively managed funds, volatile markets that are frightening customers, and commission and fee-pricing pressure from online firms.
The bromide that fee-based revenue work as an antidote to trading commission declines proved false as assets under management were affected by market declines and moves into cash.
“That trend [of people shifting from brokerage to more managed accounts] has obviously put pressure on the revenue line because at the same time that was going on we had had a lot of volatility in the marketplace, lower overall capital markets, lower overall activity,” Bank of America Chief Financial Officer said on July 18 in discussing wealth management earnings at Merrill Lynch.
Merrill’s 14,400 brokers experienced the biggest second-quarter productivity decline among the wirehouses that break out productivity numbers. (Wells Fargo & Co. does not report numbers for its Wells Fargo Advisors business.) Average annualized revenue per advisor fell 6% to $984,000 from $1.05 million in the same period in 2015.
The trend was even worse at LPL Financial, the largest independent broker-dealer. Its 14,100 brokers averaged an annualized $287,234 of fees, commissions and other revenue production, down 7% from $308,750 a year ago.
Morgan Stanley, the biggest U.S. brokerage with just under 16,000 advisors, said their average production in the second quarter was off 2% to an annualized $923,000 from $959,000.
UBS Wealth Management Americas, the smallest wirehouse with 7,100 brokers, said average trailing-12 revenue declined 3.5% to $1.08 million from $1.118 million a year earlier.
“Apart from low activity, clients’ concerns and fears continue to drive de-risking,” UBS AG Chief Financial Officer Kirt Gardner told analysts on an earnings conference call, noting that U.S. clients have been trading less and shifting assets to lower-fee mutual funds.
“To offset these recurring revenue headwinds that are not expected to abate soon, we’re redoubling our focus on pricing discipline and discount management,” Gardner said, echoing similar remarks made by Morgan Stanley executives.
At Ameriprise, which has channels for independent as well as employee brokers, annualized average revenue per broker fell 1% to $507,000, Chief Executive Officer James Cracchiolo said on the firm’s second-quarter earnings call.
Stifel Financial bucked the trend in the second quarter, with its 2,800 brokers averaging $544,000 of revenue, up 11% from $487,000 in the previous year. The numbers were boosted by its absorption of about 100 Barclays brokers, CEO Ron Kruszewski said.
“In the industry and maybe us, if you look at it, average production in traditional [brokerage] is down 5% to 8% or 9%,” he told analysts Tuesday.
David Peterson contributed reporting.