Page 14 - Investment Advisor - November 2021

INDUSTRY INSIGHTS

By Tim Welsh

Not Dead Yet — Evolution of the

Wirehouse Advisor

Despite an exodus of producers, changes have been made by big brokerage

firms to not only hold onto top players, but grow in assets. How did this happen?

f you have been an observer of the
wealth management space this past
Idecade, then you likely have seen
the long list of news articles, academic
studies and opinion pieces forecasting
the imminent death of wirehouse advi-
sors. You know, the 50,000+ strong advi-
sor force that still resides at UBS, Merrill
Lynch, Morgan Stanley and Wells Fargo?
Particularly as the markets have ebbed
and flowed over the years, employee-
based advisors and their motherships
have been under tremendous pressure
to keep up with the times and survive
the many scandals and crises that have
come at them — most of which, by the
way, were caused by their own greedy
devices. The most prime example being fake-accounts scandal at Wells Fargo has (they were called brokers back then)
the great financial crisis of 2007-09 that seriously dented the momentum of the with the ability to provide quotes and the
saw many of these firms go bankrupt or wirehouses as they are emerging from latest market developments to execute
forced into acquisitions by large banks their new bank-owned status and are now high-commission transactions on behalf
to remain solvent due to their massive thriving in today’s bull markets. In fact, of their clients.
mortgage-backed securities failings. according to Cerulli, the wirehouse advi- Believe it or not, this wire-connected
When you combine their many mis- sor channel actually has been growing — experience was a competitive advantage
steps with an archaic, conflict-rich, from $8 trillion in 2018 to over $12 trillion for decades, providing a select group of
product-sales culture and an industry in 2020. How can this possibly be? wirehouse franchises to emerge with
that is rapidly changing, it’s no wonder access to tens of millions of investors
that the term “breakaway broker” has A HISTORY LESSON across the country, all of which ulti-
become part of the lexicon. So much Before we get into those sordid details, mately created their historic growth and
so that for many analysts and observ- let’s take a step back and look into the brand recognition.
ers, wirehouse advisors were predicted origins of the wirehouses and where But as we know, technology evolu-
to become extinct in the coming years, these institutions came from to gain per- tion and the rise of the discount bro-
with a massive flight to independence spective. The term wirehouse owes its kerage industry dramatically leveled
driven not only by advisors leaving these ancestry to back in the day, before the that playing field and now anyone with
firms but also from their clients who Internet and modern communication a smartphone can get quotes, market
are seeking a better, more objective and methods, Wall Street brokerage firms information and execute trades “com-
conflict-free experience. were connected to their branches pri- mission-free” with the swipe of a finger
Ultimately, you would think that a marily through telephone and telegraph from literally dozens of providers.
once-in-a-generation financial crisis wires. This enabled branches to have At the same time, new technology
would seal their fate; however, you would access to the same market information as platforms emerged along with no-load
be wrong. Not even the mind-boggling the home office to enable their brokers mutual fund marketplaces creating an

12 INVESTMENT ADVISOR NOVEMBER 2021 | ThinkAdvisor.com