Further Growth in the First Quarter as Fee Income Rises

The first quarter of 2010 has witnessed a strong improvement in the performance of wealth managers. On the back of recovering markets, the value of assets under management has risen by an encouraging 8.9% and has exceeded the 5.0% rise in the FTSE APCIMS Balanced Index. With the up and coming regulations insisting that firms are more transparent with their charging structures, the majority of firms charge on a fee basis, i.e. a percentage of investment assets. As a result, the rising asset values have been accompanied by an increase in investment management fees of 6.9%. Coupling this with very stable cost structures, pre-tax profit margins have improved by 3.9% to 27.8% for wealth managers.

The story initially appears different for the execution only sector, with trade volumes reducing, thereby placing pressure on commission revenue (down 4.3%). However, execution only firms have reduced their reliance on commission income in recent quarters, with greater focus on custody and administration fees. These fees in Q1 2010 were up 8.2% quarter on quarter. Putting this into context, as a proportion of total execution only revenue, fee income represented 31% in Q1 2010, compared to 25% in Q1 2009. As a result, execution only stockbrokers continue to report pre-tax profit margins in excess of 35%, indicating continued strong performances.