The bull market in stocks may have been a positive force for Canada’s securities dealers, but it seems to have put a damper on the business of personal bankers.
Over the past year, markets have been very strong, particularly for domestic stocks. The spectacle of outsized returns, the promise of a sustained commodity boom and the challenge of low interest rates have conspired to push plenty of dollars into the stock market. One result appears to be stagnation in bankers’ share of the retail business.
Investment Executive’s latest survey of Canadian account managers shows little has changed for the average banker, despite a market boom. Last year, the average banker reported managing a book of slightly less than $40 million in assets. This year, that AUM average slipped to $38 million.
The slide in AUM doesn’t appear to be the result of shrinking accounts but of leaner client rosters. In fact, bankers’ client lists have been pared down dramatically in the past year — dropping to 417 this year from about 512 last year, suggesting that many clients are shifting their assets elsewhere.
However, these headline trends obscure some fundamental shifts taking place within the sector. The slimming of client rosters isn’t occurring uniformly. Rather, it is concentrated among smaller producers.
The push for improved productivity has been a dominant theme in the financial services industry for the past few years, and account managers are no exception. To examine this trend, we divide the industry into the top 20% and the remaining 80%, as measured by a basic productivity metric (AUM per client).
This year, the cut-off between the top 20% and the rest is about $150,000 in AUM/client, down from $200,000 last year. This fall-off is echoed in the industry’s overall average, down from more than $154,000 to about $111,000 this year.
With the sharp drop in average client rosters, this productivity slide is superficially puzzling. Presumably, if clients are fleeing their bankers for higher returns at investment dealers, with asset totals remaining flat, productivity should increase. But this is not the case. The reason is internal industry trends are pulling these numbers in sharply different directions.
Our data suggest client rosters are shrinking among smaller producers. Average number of clients served by bankers in the bottom 80% fell to about 440 this year from slightly less than 600 last year. At the same time, this group’s average AUM has slipped to slightly less than $26 million this year from slightly less than $30 million last year. So, while assets are down by about 14% for these bankers, client lists are down by about 33%. This suggests these account managers are being pushed to focus on bigger accounts by chopping a good chunk of smaller accounts.
This strategy may not be entirely successful. These bankers also report that accounts smaller than $250,000 make up an ever larger portion of their books — up to 64.3% this year from 52.7% last year. But the allocation in other account sizes is down year over year.
Most significantly, accounts in the $250,000-$500,000 range have dropped to slightly more than 21% of their books from 27%; accounts worth more than $1 million are down to 2.4% this year from 4.2%. While smaller producers may be culling their least productive accounts, they seem to be facing increased competition for assets, particularly for their larger accounts.
Conversely, the larger producers — the top 20% — are taking on more accounts. Their average roster has grown to 326 this year from 228 last year. This growth has also seen these bankers increase average AUM to more than $87 million this year from $75 million last year.
Growth of assets for the top 20% isn’t as rapid as the acquisition of new client accounts, however, slicing average AUM/client to slightly more than $300,000 this year from $442,000 last year.
But top producers, too, seem to be having difficulty hanging onto their biggest accounts. Their allocation to accounts of more than $1 million is down to about 10% this year from 15% last year. Client acquisition activity has seen this group’s share of accounts of less than $250,000 grow to almost 38% this year from 34% last year. More encouragingly, their share of accounts in the $500,000-$1 million range is up to more than 24% this year from about 17% last year.
@page_break@Pressure On Small Producers
A few trends seem to be in play. The pressure to focus on more valuable accounts is still there, particularly among smaller producers. But there also seems to be fierce competition for assets. This competition exists among bankers as well as across channels: among bankers, investment advisors, planners and other types of advisors.
That pressure from brokers and other competitors may ease as the bull market falters but, over the past year, bigger producers have been aggressively acquiring accounts at the expense of productivity. The competition for account managers’ assets affects both prospective and existing clients who may have been tempted to shift greater portions of their holdings to other advisors to participate in buoyant markets.
These cross-currents in trends facing account managers are reflected in the tacks their asset allocations have taken over the past year. Both top producers and the rest report a drop in the use of “other products” in the past year, while cash positions are unchanged for top producers but increased for smaller producers.
The difference is in the use of managed products. Last year, top producers reported having almost 23% of their books in third-party managed products and 46% in proprietary products. This has swung in favour of proprietary products, with these now accounting for more than 59% of books, and less than 20% in third-party products.
The rest of the industry reports the opposite trend. The allocation to third-party products among this group has jumped to more than 38% this year from slightly more than 19% last year, and use of proprietary products has dropped to just 36% from almost 54% last year.
A market slump may ultimately work in bankers’ favour, but the current boom is a challenge for those aiming to grow their books. IE