October 2, 2012

Wirehouse Model Still Bleeding Assets, Talent: Cerulli Study

Other channels, though, have a long way to catch up to the big four—Merrill, Morgan, Wells and UBS

Morgan Stanley headquarters in Times Square. (Photo: AP) Morgan Stanley headquarters in Times Square. (Photo: AP)

The number of wirehouse advisors and their asset base continues to shrink, says a report released by Cerulli Associates on Monday. Still, it remains the largest and most dominant channel in the industry.

There were about 51,750 wirehouse reps as of year-end 2011, according to Cerulli, down from 56,900 in 2007. That's a four-year compound annual decrease of about 2.5%. From 2010 to 2011, though, the wirehouse channel added about 700 advisors for a one-year growth rate of 1.4%.

This year’s study, the consulting group notes, included input from 6,000 advisors across a variety of FA channels, up from 1,500 in past years.

“These survey findings indicate a shifting advisor base between channels, with a lot of activity moving away from the wirehouse firms,” said Bing Waldert, director at Cerulli Associates of Boston, in a statement.

Cerulli attributes some of the cause for the shift between channels to merger activity among the large wirehouse firms—a la Morgan Stanley and Smith Barney—which has led to restructuring. Plus, the strong growth in the RIA channel has caused a shift in focus from wirehouses to RIAs.

Nonetheless, wirehouse advisors’ market share is dominant: Reps in this channel managed about 41% of total assets in 2011. This figure could drop to about 39% this year and 36.5% in 2013.

Other channels, though, have a long way to catch up to the big four: Merrill Lynch (BAC), Morgan Stanley (MS), Wells Fargo (WFC) and UBS (UBS).

The regional-broker channel, for instance, controls about 16% of assets, and the independent channel (excluding dually registered reps) has about 14%. When IBD reps and dully registered advisors are combined, the total level of assets rises to 22%.

Overall, the industry has been shedding financial advisors as low producers leave the industry. It included about 316,100 in 2011, down from roughly 323,550 in 2010 and 333,250 in 2009, Cerulli says.

“Asset managers attempting to distribute into advisor-sold channels are finding an increasingly competitive market, facing challenges of differentiation, passive investment, and broker/dealer profit-sharing concessions,” the report explained.

“In order to position themselves for success in the coming years, asset managers must address growth pockets within the industry, position themselves within the context of advisor portfolios, and reap efficiencies in distribution through field and key account efforts.”

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