Planners building books but not assets

The planners who responded to this year’s survey average 47.4 years in age, up from slightly less than 47 last year. They report both longer tenure in the industry and with their current firms — perhaps reflecting that there hasn’t been a lot of new blood coming into the industry, that older planners are hanging around longer and that it’s getting tougher to move firms.

Planners report that, on average, they’ve been in the business about 11.4 years and they’ve been with their current firm for more than 7.5 years. In 2000, the average tenure with the current firm was slightly less than 5.5 years. That average has jumped significantly in the past few years as the industry has consolidated and planners have found themselves with few attractive alternatives if they are looking for a new firm.
And the turmoil created by all the deal-making in the industry has dampened the natural recruiting activity that would otherwise be routine — after all, who wants to risk jumping to another firm if it is bogged down in the administrative hassle of integrating several new firms of its own?

Jump in client base

Despite these constraints, planners have been successfully growing their client bases. The average planner is now serving 332 clients, a substantial increase from 305 a year ago. And, this represents a large jump from the 223 clients the average planner served in 2000. However, despite the impressive growth on this side of the book, planners have less to show for it.

Average AUM has barely budged, creeping up to $18.3 million this year from $18.1 million last year. The weak results come after a year in which the latest stats from the Investment Funds Institute of Canada show that mutual fund assets grew 23.8% from April 2003 to April 2004. Planners’ average AUM dropped sharply from 2002 to 2003, and it appears it has barely recovered for many reps. Indeed, the average planner has little more in assets in 2004 than in 1999.

Part of this reflects the wild ride markets have taken in that time. But it also suggests there are underlying shifts taking place within the industry. The fact that the average planner continues to get older, more experienced and longer-lived at his current firm suggests that rep turnover isn’t the explanation; if older reps were simply leaving the business and their big books were being dispersed to new recruits, these other averages would probably be falling, too. A more probable explanation is that successful reps are moving out of the fund dealer business and onto the securities side, taking their big books with them. The major dealers now all have securities arms, so that is the logical move for a top-producing rep, leaving less productive peers languishing on the fund dealer side.

Certainly, we see a stark contrast between the average broker and the average planner in terms of productivity. The average planner boasts slightly more than $69,600 in average AUM per client, whereas the average broker has more than $250,000 in AUM per client. Only a handful of the planners in our survey this year — four, to be precise — are recording the kind of productivity numbers that the average broker boasts.

And that’s the situation in which many fund dealer firms find themselves — a relatively small group of reps accounting for a disproportionately large share of business volume. If we segment planners according to productivity, this picture emerges fairly clearly. Setting a purely arbitrary dividing line of $100,000 in AUM per client, we see that the dealer business can be understood as two different sales forces: those that come in above the dividing line represent the big producers, and those that fall below personify the bulk of the industry.