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Advisor Headcount Falls 5 Years in a Row: Cerulli

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The total number of U.S. advisors has fallen for a fifth consecutive year, dropping nearly 2%, according to Cerulli Associates.

“Advisor headcount decreased again [in 2013], declining 12% from a high of over 325,000 advisors in 2008,” said Kenton Shirk, an associate director at Cerulli, in a statement Wednesday.

Two channels, though, are seeing growth. “The registered investment advisor (RIA) and dually registered channels are the only segments that have increased headcount over this time period,” Shirk explained.

Plus, it’s like to continue to expand, as it’s done since 2008. “We project the headcount growth in the RIA and dually registered channels will continue over the next five years,” he added.

Specifically, the market share of the RIA and hybrid channels is likely to move up from 20% of total assets in 2013 to 28% in 2018, the Boston-based research group says.

Cerulli’s report says much of the growth in these two channels has “come at the expense” of the wirehouse channel. However, these firms continue to dominate the industry in terms of assets under management and productivity.

Based on fourth-quarter figures, the wirehouses — including Morgan Stanley (MS), UBS (UBS), Wells Fargo (WFC) and Bank of America’s (BAC) Merrill Lynch and US Trust operations — have close to $7 trillion in assets under management.

And those wirehouse reps tend to lead the advisor pack in production. UBS reps have an average of $147 million of client assets and average yearly fees and commissions of $1,091,000, for instance, as of Dec. 31. Independent advisors affiliated with LPL Financial (LPLA), by contrast, had average annual production of $248,000 as of Sept. 30.

The wirehouses, Shirk says, “operate at the pinnacle of advisor productivity and remain the premier distribution partner for asset managers.”

But they may have overplayed their hand, he notes, by renegotiating their revenue-sharing agreements with asset managers. This led asset managers to “undergo more intensive analysis of these partnerships and explore alternative distribution opportunities across channels,” the Cerulli expert states.

In fact, more than one-third (36%) of practices with at least $500 million of client assets are RIAs and dually registered groups vs. 32% that are affiliated with the wirehouses.

(Cerulli’s report is based on surveys of about 7,000 advisors across a variety of channels. The latest report includes data through Dec. 31, 2013. The group plans to issue a report using 2014 statistics later this year.)

Keeping Up

To both keep and recruit advisors interested in independence, a growing number of broker-dealers have rolled out platforms to serve RIAs and dually registered reps, the report notes. Having a multi-channel model, like Raymond James (RJF), gives broker-dealers the ability “to maximize return on fixed costs by spreading expenses across a wider number of advisors and allow BDs to leverage their scale in negotiations with asset managers when soliciting revenue-sharing agreements and strategic marketing partnerships,” Cerulli explains.

These multi-channel firms should continue to target reps looking for a platform with high levels of support and resources, since some of these FAs may be willing to give up some flexibility and cost in order to focus more on relationship building, portfolio management and other matters,

Moreover, though advisors have a variety of options to turn to, broker-dealer supplied portfolio models serve “as the most popular starting point in the portfolio-construction process,” the report points out. This is because “an expanding investment universe and increased complexity [have] magnified the importance of home-office research.”

— Check out Top 15 States With Most RIAs on ThinkAdvisor.