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

Wirehouses are continuing to lose ground in asset management market share, but do they even care? A new report from financial services industry research firm Cerulli Associates projects that the four biggest brokerage firms—Bank of America Merrill Lynch, Morgan Stanley Smith Barney, UBS and Wells Fargo Advisors—will remain the largest distribution channel by a factor of nearly two, allowing the firms to focus on profitability in a challenging market environment.

The just completed December issue of The Cerulli Edge: U.S. Asset Management Edition projects that wirehouse assets under management will fall to 35% in 2013 from 43% in 2010. While the market share decline is steep, the next largest distribution channel–independent broker dealers–is projected to increase its market share of AUM to 18%, from 16% in 2010, barely half of wirehouse assets.

Bing Waldert, Cerulli’s director of research and analysis, in an interview with AdvisorOne, says he does not expect the trend to continue. “The largest firms have seen their assets shrink while the rest of the industry has grown. I would expect their fortunes to reverse,” he says. Waldert adds that wirehouses have consciously adapted their business strategy to the “ludicrously volatile period” since 2007. “They’re not in the market share game. They’re in the profitability game.”

To that end, much of the loss in market share was the result of “planned attrition” in advisor headcount rather than “unwanted attrition,” the Cerulli analyst says. “A decent amount of the market loss can be attributed to forcing out smaller advisors.”

Financial advisors who feel unsupported or underappreciated have plenty of career options though, Waldert says.

“If you’re at a half-million dollars in production, [the current wirehouse focus on profitability] isn’t going to come as a surprise to you. There are plenty of independent broker-dealers that would welcome such an advisor with open arms,” he says.

Saxon Sorrentino, director of business strategy and development for investment services firm Fiserv, told AdvisorOne that technological innovation is bolstering the shift out of the wirehouses. “A healthy migration of advisors to the independent and hybrid channels will continue simply due to the increased availability of third-party advisory technology options, platforms and ‘out-of-the-box’ solutions that can replicate the breadth of wirehouse solutions with the added benefit of increased flexibility,” Sorrentino says.

Cerulli’s Waldert says that attrition in advisor headcount has limited the supply of advice and therefore increased the demand for productive advisors on an industry basis. “There are a wide degree of flexible options that were not there 10 or 15 years ago. They can find a firm to supply that. If [advisors] don’t want to deal with the challenges of owning and operating their own businesses,” they can find boutique-style full-service platforms like Hightower, United Capital and Benjamin F. Edwards & Co., founded by A.G. Edwards scion Ben Edwards. Waldert also points to regional firms like RBC, Baird or Janney Montgomery Scott that have attracted advisors through more lenient production minimums.

And he says that “one who is intrigued by the opportunity to own his or her own business” has plenty of options, citing LPL and Raymond James as firms attracting more entrepreneurial advisors.

Waldert cautions though that the trend toward greater industry regulation will bring increasing burdens to small business owners. But making it in the wirehouse world is no picnic either, he says. New recruits must still confront a brutal cold-calling environment. “Give ’em a phone book and give ’em six months to make it. It wasn’t easy seven or 10 years ago, but it’s even tougher now,” he says.

Fiserv’s Sorrentino also sees regulatory changes providing headwinds to growth in the independent sector. “If advisors are held to a higher fiduciary standards, they may be less willing to venture out in their own practice and prefer the backing of a larger parent,” he says.

He adds that wirehouses have an effective means of fighting back for advisor headcount. “We think we will continue to see a steady move of advisors into the “indie” channels, including independent BDs, RIAs and dual-registered, of a couple percent for the next several years, but [the trend] will be inversely impacted by the number and attractiveness of advisor retention packages that may be issued by the four wires,” Sorrentino says.