Wirehouse firms are getting hammered from every direction in the competition to attract high-net-worth investors, says a new report from the financial services industry research firm Cerulli.
While the high-net-worth market share of wirehouses slipped to 45% from a peak of 56% in 2007, and is projected to fall to 42% by 2014, both of the industry segments with which wirehouses compete in this space—traditional private client groups and multifamily offices—have momentum on their side.
In an interview with AdvisorOne, Cerulli senior analyst Robert Testa said his Boston-based firm, which has been tracking the high-net-worth market on an annual basis, has seen this trend in the making for some time, but this is the first year wirehouses have lost the No. 1 spot. The large full-service retail brokerage firms known as wirehouses, numbering just four today, include Bank of America Merrill Lynch, Morgan Stanley Smith Barney, Wells Fargo and UBS.
By year-end 2010, traditional private client groups—a class that Testa says includes whiteshoe firms like Goldman Sachs, Credit Suisse, BNY Mellon and Bessemer Trust—reached 47% of high-net-worth assets; Cerulli projects the segment’s market share will reach 49% by 2014.
Meanwhile, multifamily offices, starting from a small base, have seen the most rapid growth. These firms, many of them owned by large banking institutions but independently managed, more than doubled their assets from 2005 to 2010 and grew at an 18% rate in 2010. GenSpring (owned by SunTrust), Convergent Wealth Advisors (owned by Citi National Bank) and Hawthorn (owned by PNC) are prominent firms in the multifamily office space.
Testa said it wouldn’t be easy for wirehouses to reverse a trend fueled by technology and market changes, and accelerated by the financial crisis.
“Being a wirehouse does not give you any kind intrinsic advantage,” the Cerulli analyst says. “HighTower can offer anything that a wirehouse offers.”