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Wirehouses to Keep Losing Market Share: Report

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What You Need to Know

  • Aite-Novarica projects market share for non-wirehouse retail BD firms will remain about flat between 2021 and 2025.
  • But the research firm expects wirehouses will continue losing more market share than any other wealth management segment through 2025.
  • The wirehouse share is projected to decline from 25% in 2021 to 24.2% in 2022 and 21.9% in 2025.

The wirehouses have been steadily losing client investment asset market share over the past decade and that trend is only expected to continue in 2022 and beyond, according to Aite-Novarica Group.

The research firm expects the market share for non-wirehouse, self-clearing, retail broker-dealer firms to remain about flat between 2021 and 2025 and for discount/online brokerage firms to increase from 23.5% in 2021 to 26.8% in 2025.

The firm is projecting “relatively stable market conditions and no major change in performance differentials among channels” over the next few years, meaning “we do not expect one channel to suddenly become much more efficient than another,” it said in the new report, “New Realities In Wealth Management: The Storm Passes, Growth Continues,”

But the wirehouse channel is expected to continue losing more market share than any other financial wealth management segment through 2025 after being the only channel in the industry to see a decline in market share every year since 2016, according to the report.

After shrinking from 33% in 2010 to 25.8% in 2020, Aite-Novarica Group estimates the wirehouse share will continue to fall, declining from 25% in 2021 to 24.2% in 2022 and 21.9% in 2025.

But recent shifts in strategy by Bank of America and Morgan Stanley, which have made “substantial investments in online brokerage to generate in-house referrals to their wirehouse businesses,” could “change the market share trajectory for this segment,” according to Aite-Novarica.

Another positive: Total client assets in the wirehouse segment increased 16% for the second straight year in 2020, to $9.6 trillion, the research firm said.

Each of the four wirehouses increased their client assets from 2019 to 2020, with Morgan Stanley’s growing 17% to $3.2 trillion, Merrill Lynch’s growing 13% to $2.9 trillion, Wells Fargo’s jumping 22% to $2 trillion, and UBS’s increasing 12% to $1.6 trillion, Aite-Novarica said.

UBS “leads the segment regarding client assets per advisor,” with an average of $249 million, compared with $198 million for Morgan Stanley’s average advisor, $167 million for Merrill’s average advisor, and $148 million for Wells Fargo’s average advisor, according to the research firm.

“The wirehouses are actively right-sizing their client bases, targeting larger clients, and shifting the less affluent to hybrid and robo-advice,” the report said.

In the meantime, however, the wirehouses also “continue to steadily lose advisors to other channels,” according to Aite-Novarica.

Although the number of Morgan Stanley advisors inched up 3% (532 advisors) to about 16,000 advisors in 2020 from 2019, Merrill’s advisor count dipped 1% to 17,331, while Wells Fargo’s fell 6% to 13,513 and UBS’s dropped 4% to 6,305, the report said.

“While advisors’ departure from the wirehouses is primarily driven by the increased accessibility of independence, significant numbers of advisor departures have been due to the wirehouses pruning their least productive advisors,” the report said.

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Non-Wirehouse BD Stability

The self-clearing retail brokerage/non-wirehouse segment has “historically retained a stable 16% of the market, and Aite-Novarica Group expects this share to remain unchanged over the next four years as firms transition from inorganic to organic growth,” the report said.

The channel’s market share is projected to dip to 16.3% in 2021 from 16.4% last year and then dip to 16.2% in 2022 and 16.1% in 2023 before flattening to 16% in 2024 and 2025, according to Aite-Novarica.

Self-clearing retail BDs’ client assets grew 17% in 2020 to $6.1 trillion, the report said. Edward Jones represented 25% of those total assets for the segment, while LPL Financial, Raymond James and Ameriprise accounted for a combined 41%, “demonstrating substantial concentration within this space,” the report said.

Companies in this broker segment have traditionally grown via acquisitions, the report noted.

“As growing numbers of advisors reach retirement age, the segment will need to shift from inorganic growth to optimization, focusing on advisor productivity and new client acquisition,” according to the research firm.

The large independent BDs have rolled out affiliation models that were developed to attract high-performing advisory practices, “touting personalized back-office support functions and RIA offerings, hoping to retain their services (and production) in years to come,” Aite-Novarica said.

All companies in the segment, meanwhile, are investing significantly in technology to help their advisors compete with more advanced digital capabilities available at the wirehouses and online brokerages, according to the report. Aite-Novarica predicted that strategic transition will play a key role in the flattening of growth over the next five years.

Among the large, non-wirehouse BDs, Edward Jones has the largest headcount and, with its “franchise model and strong brand equity, continues to grow,” according to the report.

LPL, meanwhile, also has a “significant advisor force,” but Aite-Novarica Group projects “attrition in the near future as the firm focuses on upping its productivity amid increased competition,” the report said.

Advisor Breakaways

The COVID-19 pandemic-driven shift to working from home “accelerated secular trends driving advisor breakaways,” the report also said.

“Disconnected from the office, many wirehouse advisors reconsidered the value of their firms’ operational support — especially at the cost of sizable payouts and taking into account the required adherence to rigid product and compliance policies,” according to Aite-Novarica.

Meanwhile, “halfway house” RIA affiliation models from large independent BDs including LPL and Raymond James, as well as turnkey, modular platforms available to independent RIAs through RIA aggregators, are providing advisors with “multiple flavors of independence,” the report said.

(Photos: Bloomberg)