Advisors are focusing on larger, more productive households in the North American retail wealth management market, with the average number of households per advisor dropping 8 per cent in 2011, according to a new US study.

Despite signs of a focus on quality business, overall growth in 2011 was weak in the retail wealth management industry, according to a report by PriceMetrix. Average advisor revenue grew 1 per cent to $537,000, but assets under management dropped from $79 million in 2010 to $74 million last year.

Advisors are, however, “significantly rebalancing” their portfolios toward larger households, with the average number of households an advisor serves declining from 192 to 177 last year, according to the study. The reduction came primarily in those households with fewer than $250,000 investable assets. Since 2009, industry-wide these households have become less important: dropping from 71 per cent to 65 per cent of all households.

At the same time, advisors are concentrating on opening accounts for larger households and average household revenue increased 7 per cent in 2011, from $2,954 to $3,174.

As part of this trend, assets from large households, defined as those with at least $1 million in assets, was the biggest growth segment, representing 57 per cent of all new assets.

“More importantly, advisors created more capacity for adding larger households and/or raising the level of service for their existing relationships,” the study said.

The report was based on PriceMetrix’s aggregated retail brokerage data, representing information on 3 million investors and around $900 billion in investment assets.

Fee-based accounts are also a growing phenomenon, PriceMetrix found, with the average number of fee-based accounts each advisor holds growing by 10 per cent last year to 85. Since 2009, the average number of fee-based accounts per advisor has shot up by more than 35 per cent. Fee-based assets as a proportion of total assets also rose in 2011, by 13 per cent, while fee-based revenue as a proportion of total revenue climbed 10 per cent.

Accordingly, fee-based revenue as a proportion of total revenue has crept up year by year: from 35 per cent in 2009 to 39 per cent in 2010, and hitting 43 per cent in 2011.

However, within this there are some “disturbing” trends, the research firm says, with average return on assets on fee-based accounts decreasing as new accounts are being priced at a rate far below existing fee-based accounts. The report estimates a discount of 11 per cent. In fact, the average RoA for fee-based accounts dropped from 1.21 per cent in 2010 to 1.19 per cent in 2011, with new fee-based accounts taken alone having an RoA of just 1.06 per cent.

Given this, part of the opportunity for advisors lies with increasing the price they charge for fee-based accounts, said Doug Trott, president and chief executive of PriceMetrix.

Looking ahead, PriceMetrix says there are several areas where advisors can capture more upside. Firstly, one of the challenges remains to “close the gap” on fee-based pricing, pricing similar-sized accounts within a narrower range, the report recommends. There is also more to be done on the strategic side, with 30 per cent of households still producing less than $150 in annual revenue, despite continued efforts from firms and advisors to rationalize portfolios.

Meanwhile, advisors are concentrating efforts to open multiple accounts with one household, as these multi-account relationships grew 2 per cent last year, but 44 per cent of households still only hold one account with an advisor, says PriceMetrix.