The number of advisors with the four wirehouse firms slipped about 2% in the past year to 52,987, according to their latest financial reports. Meanwhile, total assets rose about 15% to $8.3 trillion in 2019, as the major stock indexes improved 23% or more.
Morgan Stanley’s wealth unit is now down to about 15,500 from roughly 15,700 a year earlier, while UBS Americas is close to 6,550 vs. 6,850 in 2018. Wells Fargo’s headcount stands at some 13,500 vs. nearly 14,000 in the prior year. Merrill’s advisor group (excluding those with Bank of America’s Private Bank) decreased by 60 to 17,458 over the past year, including the Merrill Edge reps.
The headcount figure for the four wirehouses has “been diminishing every year, and going back to the financial crisis, it’s now dramatically lower,” said Danny Sarch, head of Leitner Sarch Consultants. “The trend is very clear,” Sarch added, “but it’s so hard to make a generalized statement [about this] given the lack of clarity there is around these figures.”
These firms and others can include anyone with a Series 7 license in their data, he points out, and then exclude these individuals in the overall advisor production figures. “When it comes to the advisor attrition being net up or net down or the number of advisors recruited in or retired out, it is not very clear,” Sarch said. “This lack of transparency makes me very suspicious.”
The headcount for UBS, for instance, includes advisors in Latin America. (Merrill recently said its advisor attrition was about 4% in 2019.)
The declining wirehouse headcounts “are partially due to the industry’s aging and shrinking salesforce,” said Mark Elzweig of the recruiting firm Mark Elzweig Co., who adds that Cerulli Associates’ data shows about a third of advisors could retire over the next decade.
In addition, the wirehouse headcount drop is a result of the exit of both UBS and Morgan Stanley from the Broker Recruiting Protocol, according to Elzweig, “and their new focus on selective upgrades to their sales force rather than broad-based new hires.” But the latest numbers “may cause that [approach] to change,” he says.
The falling wirehouse headcount “is a reflection of a failing business model and shows these firms are either unable or unwilling to adjust to the marketplace,” according to Sarch. “Every year, it looks like they are getting more rigid in their policies and procedures rather than more flexible,” he said.
“They build bigger and bigger walls because of the drive for short-term profits,” Sarch said. “But they train advisors to focus on long-term trends and not the short term when it comes to managing client assets — what irony.”
Meanwhile, “Cultural changes and bureaucracy are prompting more wirehouse advisors to move to regional and independent firms,” Elzweig said. “Given that firms have an aging salesforce, without an aggressive recruiting program, their headcount will [continue to] shrink. Will the increased productivity of those who remain make up for this? We will see.”
Developments at LPL
Like other firms in the advice business, LPL Financial recently reported its fourth-quarter and full-year results. But unlike many rivals, the largest independent broker-dealer also highlighted a long list of details both on the sources of its recent growth and on the strategies and programs that it expects to propel further expansion.
First, the latest key performance indicators: Its financial advisor headcount stands at 16,464 vs. 16,109 a year ago, a jump of 355; it added 115 net new advisors in the fourth quarter of 2019.
Total client assets are $764.4 billion vs. $628.1 billion a year ago; net new assets were $8.8 billion in Q4’19 vs. $5.9 billion in Q4’18. Assets from recruited advisors in Q4’19 topped $10 billion, bringing LPL’s full-year total to $35 billion. Advisors affiliated with the independent broker-dealer have an average of $46.4 million in client assets and about $246,000 in yearly fees and commissions — up 19% and 5% year over year, respectively.
President and CEO Dan Arnold, speaking with equity analysts in late January, said net new assets from existing advisors grew close to 4% in 2019 vs. about 2% in 2018.
The IBD reported fourth-quarter earnings of $1.53 per share, up 13% from Q4’18. Net income improved 5% year over year to $126.7 million, as revenues rose 10% to $1.45 billion. Here’s what the firm has in store for the future:
1. More ways advisors can join: As for future growth, the IBD’s “first strategic play involves winning in our traditional independent and institutional markets while also expanding our affiliation models,” Arnold said.
Turning to LPL’s latest affiliation model, its premium offering for RIAs — launched in Q3’19 — “has been well received and generated good feedback from prospective advisors,” according to the CEO. “We now have our first couple of committed practices, which we expect will join over the next few months, and we are encouraged by our growing pipeline of interested advisors.”
The IBD exec also said one affiliation model LPL is in the process of building is “focused just 100% on an RIA-only firm.” Overall, LPL plans to go to market with a new affiliation model in the second quarter and with another one “later this year,” Arnold said. “We are receiving good feedback with respect to the value proposition associated with those programs, … and … we feel good about the results from last year and our pipeline as we move forward.”
2. Race to zero: As for pricing, which the firm hopes will help its advisors stand out in the field, LPL has been adjusting its advisory platforms and transaction costs. In Q4’19, it introduced a no-transaction-fee ETF offering on its corporate and hybrid advisory platforms.
“In 2020, we are taking the same approach in light of the continued secular industry trends towards advisory solutions and lower retail trading commissions,” Arnold said.
3. Enhancing the client experience: The firm also intends to create “an industry-leading service experience that enhances our ability to attract and retain advisors,” he added. This effort includes “intelligent routing of their inquiries and case management for complex issues.”
Over the past two years, the CEO says, this focus helped the firm boost its advisor satisfaction level — as measured by Cogent Syndicated’s Net Promoter Score (or NPS) — by 45 points. In the fourth quarter, LPL tried out an interactive voice-response system and expanded the scope of its case management team to include all advisors.
4. More outsourcing methods: To help advisors run and grow their practices, LPL is moving to offer more outsourced business solutions, digitized workflows, advisor-focused capital solutions and lead generation, according to Arnold.
As for business solutions — including services like virtual CFOs — LPL “ended the year with 650 subscribers, which was up 500 over the year,” the executive said. “We see that as a really positive trend.”
Overall, he added, the IBD was “in that developmental phase, where we were continuing to build the foundation and the infrastructure to scale in a really thoughtful and effective way” in Q4 ‘19.
But LPL now is in “more of an operational phase where we are really focused on scaling … [a]nd we began to make that transition this year,” Arnold said. Plus, LPL is “seeing positive trends coming from those that are using these services today” and “seeing [the business solutions] help [it] attract new advisors.”
5. Giving advisors growth tools: The IBD is about halfway through its plan to automate advisors’ six primary workflows — the tasks that now take up about 80% of advisors’ time, LPL says. For instance, the firm has integrated some customer relationship management solutions and resources from Salesforce and Redtail into its platform.
In Q4’19, it integrated three financial planning tools used to turn prospects into clients — its own goals-based planning solution and resources from MoneyGuide and eMoney.