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March 17, 2010 at 08:00 PM
“Remember that no one ever kicks a dead dog.” – Dale Carnegie
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It has become popular to discuss the death of the retail brokerage model. The market turmoil wiped out many franchises or prompted many wirehouse advisors to retire early. Some moved to regional dealers or independent channels. Still others are finding that unless they meet a certain bogey, they are no longer welcome.
And so the mighty powerhouses appear to have become the incredible shrinking hulks.
Cerulli Research estimates that assets in the wirehouse community will shrink from 48% of individuals investor’s assets under management as of 2008 to 41% by 2012 – a substantial drop in market share over several years. Meanwhile, the Boston research group estimates that independents will snag 23% of assets, up from 19%.
But the wirehouse model is far from dead – even if critics say it is broken and claim its advisors are nothing but retro product pushers. Wirehouses are far from perfect but no one should forget that they have been sources of innovation and leadership and despite all that has transpired still have the resources to retain that position.
If I were a wirehouse executive, I would view these first-draft obituaries as backhanded compliments born largely of jealousy.
In his book How to Stop Worrying and Start Living, Dale Carnegie tells the story of cadets who regularly kicked their classmate, the Prince of Wales and future Kind Edward VIII. When confronted, the teenagers confessed that later in life “They wanted to be able to say that they had kicked the King!”
I would assert that the wirehouses are likely to remain the leaders of the pack if they keep an eye on innovation and carefully manage broker talent. As an executive recruiter to the industry for more than 25 years, I offer this short list of advice:
1. Focus on the aspects of the wirehouse model that work: scalable offerings for a wide range of clients
Unlike their competitors, wirehouses offer unusually extensive platforms as well as turnkey solutions under recognizable name brands. Merrill Lynch, even if owned by a commercial bank, carries serious cachet and weight for retail investors. Generations of advisors have utilized the wirehouse platform to build successful, high-end franchises.
Wirehouses cater to an astounding number of large accounts. For example, they dominate the Separately Managed Account (SMA) industry – holding an estimated 79% of assets, according to Cerulli. Wirehouse advisor teams with $200 million or more in assets control a disproportionate amount of those assets.
2. Reinstate what was once the unparalleled support system
Before the Great Recession, wirehouses provided the deepest and broadest array of resources to advisors and their clients. Over the past couple of years, the firms have been forced to slash and burn overhead. Layoffs have cut deep into many aspects of support, including product specialists, field wholesalers, due diligence analysts, and trainers for advisor teams. Those services were key to retaining advisors.
Regionals have negligible turnover because their advisors have ready access to home office people; advisors feel connected and in charge of their destinies. This is no longer as true for wirehouses and is a serious Achilles heel.
