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Wirehouses to Lose 8% in Market Share, Average AUM Up 10%: Cerulli

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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.

Fierce Competition

“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 Woes

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.

In contrast, reps with independent BDs and RIAs, combined had 28% last year and this year. That figure should jump to 32% in 2013, with independent broker-dealers (IBDs) accounting for 18% and registered investment advisors (RIAs) 14%. Duly registered advisors should maintain a constant 7% market share, Cerulli says.

“For asset managers, increased assets among fewer advisors allows for greater wholesaler focus on top producers,” said Cerulli in its recent report. It also means lots of competition for the top advisors within the broker-dealer community.

“However, firms should expect increased competition among target producers, as competitors fight for distribution amid shrinking numbers of advisors and marketshare of assets,” continues the report. “Asset managers struggling with placement on wirehouse product lists might reconsider whether the channel is the best recipient of their dollars and manpower.”

While such consideration could prove worthwhile, Smith said, a total sea change within the asset-management industry is not expected.

“The [wirehouse] share has been sliding and should continue to do so, down to the mid-30s,” Smith explained. “But that’s still the biggest pile to address, certainly. It still has 50,000 advisors.”

Plus, average assets per financial advisor are still greatest in the wirehouse channel at $94 million (in 2010) versus $64 million for dually registered reps, $63 million for RIAs and $18 million for IBD advisors. Average assets for the wirehouse reps rose more than 10% from 2009, when they were roughly $84 million, according to the research group. 

The wirehouse channel has experienced “erosion, yes, but not a complete catastrophe,” concluded the Cerulli analyst.

Regardless of the channel, the latest Cerulli figures show that the “consolidation of both numbers of advisors and assets among the top-25 BDs is increasing the bargaining power of these intermediaries over their distribution partners,” according to the group’s latest report. These leading BDs had about 61.5% of all advisors in 2004, but that number jumped to 66.4% in 2010.


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