Wealth management firms are struggling with a drop in fees, scarcity of new clients and little prospect for growth as young investors shun full-service retail firms.

Even as the bull market pushed industry assets under management to a record in 2016, advisers in North America earned less from clients last year and saw a decline in average fees, according to a report issued Wednesday by PriceMetrix, a unit of McKinsey & Co.

“The environment is one that is really challenging,” Patrick Kennedy, chief customer officer at PriceMetrix, said in an interview. “There’s obviously a dynamic in the industry that’s challenging advisers and their value right now.”

Retail wealth management companies are combating the rise of low-cost index fund investing and the advent of robo-advisers, which allow investors to create portfolios online for a fraction of the expense of traditional firms. Such forces may spur more industry consolidation and a contraction of profit margins, according to a December survey of industry leaders.


During a year in which the MSCI All Country World Index returned 8.5 percent, revenue per adviser fell 1 percent to $583,000 in 2016. The number of commissionable equity trades per adviser hit a low of 214 last year, down 22 percent from 2013, PriceMetrix said.

‘Healthy Base’

While the report describes an industry facing challenges, the research offers some cause for optimism. Average assets under management per adviser jumped 6 percent to a record $92 million in 2016. Clients also developed deeper relationships with advisers as the number of accounts per household reached a record and the number of single account households reached a low of 41 percent.

“As much as we want to see them return to growth, they’re growing off of a very healthy base right now,” Kennedy said of advisers.

Even as wealth management firms struggle, such companies’ shares have more than kept pace with the market. Over the past five years, an S&P index of asset managers and custody banks has gained 94 percent, outpacing the S&P 500.

The PriceMetrix report reveals an industry split among the top performers and struggling firms. The top quartile of advisers increased revenue by 26 percent on average, while there was a 17 percent decline for the bottom quartile in 2016.

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