Trendspotter: Wirehouse Rep Decline Shows No Signs of Stopping

The Trend

The number of brokers and advisors at the four wirehouses — Bank of America Merrill Lynch, Morgan Stanley, UBS and Wells Fargo — has been declining for several years and is expected to continue dropping for the foreseeable future.

While that decline doesn’t appear to be happening significantly faster now than it has been since the trend started in about 2010, after the end of the Great Recession, reps are fleeing wirehouses to start independent RIAs or join RIAs or smaller broker-dealers for an ever-growing multitude of reasons.

Morgan Stanley has stopped reporting advisor headcount, a spokesperson for the company said Thursday.

But headcounts at the other three wirehouses all declined last year.

The total combined number of Merrill and Private Bank wealth advisors fell by 7 last year to 19,373 at Merrill Lynch.

The number of UBS wealth advisors in the Americas, meanwhile, fell to 6,305 as of Dec. 31 from 6,549 a year earlier (a decline of 244 people). And the number of both financial and wealth advisors at Wells Fargo at the end of its fourth quarter stood at 13,513, versus 14,414 a year earlier. That was after the firm said in October that several hundred advisors were included in layoffs that started in August.

The Drivers

· Decreased emphasis on training programs and recruiting.

· Fewer acquisitions.

· Increased strength of regional broker-dealers.

· It’s easier than ever to become an independent RIA.

· A shift to RIAs as the most appealing business model.

· Too much bureaucracy and regulation.

· The growth of self-directed trading.

· A decreased need for full-service advisors and brokers.

· A lack of newcomers to replace registered reps who retire or shift channels.

· Decreased appeal among younger Americans for Wall Street in favor of the tech sector.

· Declining cachet of big-name wirehouse firms.

· It’s become harder for many reps to make a significant amount of money at wirehouses.

· Layoffs.

The Buzz

Andy Tasnady, managing partner of Tasnady Associates

Tasnady points to two big factors in declining wirehouse headcount: “One is the reduction of large training programs that over the years had been a source of new reps,” he says. “The second is there’s [very few] acquisitions anymore.”

Wirehouses also “took their foot off the accelerator of trying to recruit [and] paying big recruiting packages.” Wirehouses are limiting their recruiting to specific “tactical needs,” like Merrill wanting to recruit in Florida.

“The bigger factor, I think, in terms of the overall industry is just the reality that the full-service retail brokerage channel is a mature business model,” he says.

“You used to have to call your broker” to get a price quote on IBM, he recalled, with a laugh. “The access to information is now on your fingertips. The access to advice is on your fingertips also.”

Many wirehouse reps are looking for a different manager and/or a “smaller environment where they can have more control” and be a “bigger fish in a smaller pond [and] they want to call all the shots.”

It may be easier to go indie now because so many more firms like Schwab are offering clearing and other services that advisors used to have to provide on their own.

Danny Sarch, president of the recruiting firm Leitner Sarch Consultants

“Fleeing the wirehouses is absolutely the trend,” Sarch says.

“Some of it is related to the current environment, meaning people leaving and going to independents.

“But the bigger trends [that] have been going on for years have nothing to do with that. It’s a combination of the aging of [the wirehouses’] current advisors, the shortage of Gen X advisors and the inability of the industry to train successfully millennial-age advisors.”

Also, to earn $100,000 a year, if you’re working at a wirehouse, you would have to make revenue of $300,000 a year and be managing $30 million or so in assets. Tell a 30-something person they need to make that much and “you might as well tell them they have to fly to the moon.”

That is one reason “the wirehouses are not seen as a desirable option” for many people.

“You throw that all into the mix and shrinking is absolutely inevitable to the point where some of the firms are fudging their numbers…. I suspect that the shrinking numbers are even much more dramatic than what they will say publicly.”

Years ago, “the wirehouses truly had a technological advantage and they had a product advantage.” That is not the case anymore as “technology has become democratized” and investors now have access to the same technology wirehouses have if they want to pay for it.

Twenty years ago, it would have been “laughable” if you thought you could build a practice like Dynasty or Focus that could compete with wirehouses, he says.

Now, “the advisor has to say: ‘Where is the best place for me and where is the best place for my clients?’ And it’s hard to make the argument that that is the wirehouses.”

Also, “these brands were tainted terribly by the financial crisis.” So if you are in your 40s and were “traumatized” by what the financial crisis did to your family, “there’s no magic to the brand of Merrill Lynch” or the other wirehouses’ brands anymore. Wells Fargo also has several recent scandals on top of that and that “lingers in peoples’ minds.”

Louis Diamond, president of Diamond Consultants

Wirehouses keep losing reps for multiple reasons: “The new popularity of independents. [There’s] more support and resources and a proof of concept for wirehouse advisors that independence is a viable alternative.”

Also: “Companies like Raymond James and Stifel and RBC … more of these superregional firms really grew in popularity and, post-crisis, wirehouse advisors cared much less about the brand and instead wanted to work for companies that just treated the advisors better and that didn’t have negative reputations in the crisis.”

Third, “advisors prioritizing flexibility and control of their business over most other things.”

It’s been proven by advisors who left wirehouses that “you don’t need to have the fancy business card or the UBS logo on your website,” he says.

Mark Elzweig, executive recruiter and president of Mark Elzweig Co.

“Many advisors were trained at major wirehouses and early in their careers learned to leverage off the brand name of their firm to build their business. Eventually, many advisors reach a point at which they realize that they are the brand — not their firm — so unless they feel that their wirehouse is meeting their needs or that of clients they are likely to leave.”

“The trend to exit wires will likely continue. But wirehouses have many strengths and I’d never count them out.

“Many advisors like the convenience of a turnkey workplace in which is set up for them to focus on garnering and servicing clients and in which they don’t have to be distracted with choosing their tech stack or finding a sales assistant. Wires offer compelling recruiting packages, deferred comp programs and advisor retirement programs. No matter how much competitors malign them, they will always be major players in the retail wealth management space.”

(Pictured: Andy Tasnady)