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Wirehouses Begin to Close the Margin Gap Despite Sustained Improvement at Asset Management Firms
The margin story for asset management firms has been a continuation of the same trend seen in 2012, with the average operating and net income margins increasing to 31.3% and 22.6% respectively in Q2 2013, up from an operating margin of 31.2% and net income margin of 21.3% in Q4 2012. The rise in margins was due mostly to higher assets under management and increased fund management fees. In fact, of the 17 asset management firms tracked by kasina, asset balances climbed for 16 firms, with 10 of those firms generating positive net flows over the first half of the year. That stands in contrast to the last quarter of 2012, where only seven asset managers generated positive net flows, and asset balances for many firms were largely attributable to market appreciation. Cost constraints were also less of a factor in improving margins this year, as most companies posted higher overall costs and compensation expenses.
However, despite the financial improvements in the first half of 2013, a number of key issues emerged in Q2 2013. Foremost among them was the dramatic slowdown in net flows to fixed income products given the recent rise in bond yields. Equity net flows, while better than last year, were insufficient to offset the fixed income shortfall. Moreover, both operating margins and net margins slipped for the group from the first to second quarter of 2013, as operating costs outpaced revenue for many firms.
For the wirehouse distributors, financial results over the first half of the year were largely positive. Bank of America Merrill Lynch, Morgan Stanley Wealth Management, Wells Fargo Advisors, and UBS Wealth Management each posted higher assets under management and client balances, generated increased asset management, distribution, and administration fees and net asset flows, and slowed sequential growth in operating expenses. While the number of financial advisors employed by the wires was mostly flat or down since the end of last year, advisor productivity has increased sharply given a greater emphasis on a higher client profile and assets. Consequently, annualized revenue per rep has increased strongly over the past several quarters at each of the firms. Bank of America/Merrill Lynch remained the leader among the four firms with annualized revenue of $1.0 million per rep in Q2, followed by UBS at $1.0 million, Morgan Stanley at $866,000 and Wells at $854,000. Bank of America Wealth Management, which includes Merrill Lynch and U.S. Trust, also led the four firms with approximately $2.2 trillion in total client assets (which includes AUM, custody and brokerage assets), $744 billion of which resides under the wealth management business.
kasina’s commitment to innovating distribution in the financial services industry has made it one of the most influential strategy consulting firms in its sector. kasina works with a wide variety of clients from five continents, including firms representing 90% of the U.S.’s total assets under management. An overview of services offered by kasina is available at https://kasina.com.
Page Updated Last on: Aug 30, 2013