While wirehouse broker-dealers had about 43% of the asset-management market share or product distribution in 2010, this figure should drop to 35% by 2013—representing an 8% decline, according to a report released Friday by Cerulli Associates.
Meanwhile, tension between the wirehouses and the product manufacturers is increasing, said Cerulli Associate Director Scott Smith in an interview with AdvisorOne, as the wirehouses look to increase profits and the manufacturers seek to limit costs.
For the next few years, though, the wirehouse model should remain the dominant distribution channel, leaving the two partners in an interesting dance for dollars, Smith noted.
“Competition is intense for every dollar of the asset-management [business],” he said. “The wirehouses want to increase their margins from 10% to 20% overall, so they are chopping advisors off the bottom.”
Plus, the analyst added, when advisors look at their product partners, they are seeing asset-management margins of 20% to 30%. “They want to know why they aren’t getting these margins, too. After all, if you want to distribute through us, you need to make it worthwhile,” Smith said.
For asset managers, though, this is leading to questions over what it could cost them to sell through the wirehouses. “And then they are asking, ‘Does it cost me 98 cents to earn a dollar or $1.01?’” Smith said. “In other words, ‘Would I get more revenue by working with another broker-dealer channel? Where is it more profitable for me to sell?’ Sales may be less profitable through the wirehouses, but the volume keeps them interesting.”
Wirehouse broker-dealers had 43% of industry assets under management (AUM) in 2010; they have an estimated 40% this year and are expected to have 35% by 2013, which suggests an 8% decline, according to Cerulli.