Wirehouse market share has shriveled since crisis

Jan 22, 2012 @ 12:01 am

By Andrew Osterland

The wirehouses have been losing market share hand-over-fist since the financial crisis, and according to estimates from Cerulli Associates Inc., the trend may only accelerate over the next three years.

“The advisory industry as a whole continues to rebound, but the four wirehouses are not rebounding,” said Bing Waldert, director at Cerulli Associates. “The years since 2007 represent a worst-case scenario for the wirehouses, as these firms were punished by the bear market and their perceived role in the financial crisis.”

The four wirehouses are Merrill Lynch Wealth Management, Morgan Stanley Smith Barney LLC, UBS AG and Wells Fargo & Co.

Total assets under management in the financial advisory industry finally recovered to pre-crisis levels, topping $11.2 trillion at the end of 2010. That figure was $11 trillion at the end of 2007.

Assets at wirehouses, however, fell from $5.5 trillion to $4.8 trillion during that same period. In market share terms, that is a drop from 50% to 43%.

The numbers would have been even worse if not for the $300 billion in assets at Bank of America Corp. that were thrown into the wirehouse bucket after the bank acquired Merrill Lynch & Co. Inc. in 2009.

ANOTHER DROP?

Cerulli is estimating that, based on these trends, wirehouse market share could drop another 8 points to 35% by the end of next year.

“Our projections are grounded in what's happened in the past, so they reflect to some extent another worst-case scenario for the wirehouses,” Mr. Waldert said.

The market share losses, to a degree, are by design as the wirehouses increasingly have focused their resources on advisers serving wealthier clients.

Morgan Stanley Smith Barney has been openly culling lower-producing advisers from its ranks for the past year. Recent changes made by Merrill Lynch to its compensation grid suggest that the focus on the more profitable high end of the market will only increase.

“The market share decline is an after-effect of the wirehouses' focusing on fewer larger advisers with fewer and larger clients,” Mr. Waldert said.

However, perhaps most troubling of all from the point of view of the wirehouses is the fact that despite their focus on the high-net-worth market, they are losing share there, too. According to Cerulli's research, the wirehouses' share of clients with more than $5 million in assets fell to 45% at the end of 2010, from 56% in 2008.

COMBINATION OF FACTORS

So what explains the dramatic decline in wirehouse market dominance?

Mr. Waldert said that it is a likely combination of three things.

First, advisers are leaving for other distribution channels, with independent broker-delaers and RIAs the fastest-growing segments of the market. Second, clients are leaving their wirehouse advisers, though Cerulli doesn't have specific numbers on that trend.

Finally, weak investment performance, again with no numbers to confirm, may be a factor.

Mr. Waldert said that the first two factors are the most important, but suggested that poorer investment re-turns might also explain part of the huge decline in assets under management.

“It's possible that customer distrust in the wirehouse channel made them more likely to stay on the sidelines, and therefore they didn't participate in the recovery as much as others have,” he said.

A spokeswoman for Merrill Lynch Wealth Management declined to comment.

Officials at Morgan Stanley Smith Barney, UBS and Wells Fargo didn't return calls seeking comment.

aosterland@investmentnews.com

0
Comments

What do you think?

View comments

Recommended for you

Sponsored financial news

B-D Data Center

Use InvestmentNews' B-D Data Center to find exclusive information and intelligence about the independent broker-dealer industry.

Rank Broker-dealers by

Upcoming Event

Apr 30

Conference

Retirement Income Summit

Join InvestmentNews at the 12th annual Retirement Income Summit - the industry's premier retirement planning conference.Much has changed - and much remains to be learned. Attend and discuss how the future is full of opportunity for ... Learn more

Featured video

Events

What to do when your partnership ends

Breaking up is hard to do: and that is certainly true when it comes to advisory firms. Financial Adviser Rob Holdford tells his story and explains how you can survive and thrive when a partnership dissolves.

Video Spotlight

The Search for Income

Sponsored by PGIM Investments

Recommended Video

Path to growth

Latest news & opinion

Trump rejects idea of new caps on 401(k) savings in tax plan

GOP reportedly had been considering reducing the cap on the annual amount workers can set aside for 401(k)s.

Finra's stats reveal an industry in decline

The broker-dealer regulator reports fewer entities under its watchful eye.

T. Rowe Price steps up its game to serve financial advisers

The Baltimore-based mutual fund giant is more aggressively targeting financial advisers with a beefed-up wholesale crew and placement on custodial platforms.

The most important tax changes for 2018

The Internal Revenue Service issued inflation adjustments to more than 50 tax provisions for 2018.

Shift to Roth 401(k)s 'highly likely' part of tax reform: former Treasury official Mark Iwry

Mandated contributions to Roth accounts would likely only be partial, as opposed to having a full repeal of pre-tax accounts.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print