The decline in wirehouses' market share of assets in the advisory industry has been dramatic since the financial crisis, and Cerulli Associates expects the trend to accelerate over the next three years.
From the end of 2007 to the end of last year, the asset share of the four wirehouses — Bank of America Merrill Lynch, Morgan Stanley Wealth Management, UBS Wealth Management and Wells Fargo Advisors — fell to a combined 41.1%, from 47.8%, according to Cerulli data. And the research firm is expecting those firms to lose another 6.9 points of share by the end of 2014, leaving them with an estimated 34.2% of the market.
“The wirehouses are looking for smaller, more productive adviser forces,” said Tyler Cloherty, a senior analyst with Cerulli. “They want to get to 20% profitability, so they've been changing compensation and moving away from midtier advisers and mass-market clientele. We're seeing a lot of advisers at the bottom end leave the wirehouses.”
Far more alarming for the big Wall Street firms, however, is the competition emerging on the high end from the registered investment adviser channel. Mr. Cloherty noted that platforms at the custodians have improved enormously over the last several years and wealth management service platforms being offered by firms such as Dynasty Financial Partners LLC and HighTower Advisors LLC are encouraging more large wirehouse advisers to go independent.
“They won't lose their advisers en masse. It's going to be death by paper cuts,” Mr. Cloherty said. “We expect the wirehouses to lose assets on both the low and high ends.”
The biggest beneficiaries of the decline will be regional brokerages, dually registered advisers and RIAs. Cerulli estimates that they will pick up 3.5, 2.4 and 2.2 points of market share, respectively, over the next three years.
The Cerulli Intermediary Distribution 2012 report is targeted at asset managers looking to improve their distribution across advisory channels. The wirehouses remain the heavyweights in the industry, and Mr. Cloherty suggested that asset managers feel compelled to pay the increasing fees being demanded by wirehouses to access their platforms.
“It's hard to be a successful asset manager and not have success with the wirehouses,” Mr. Cloherty said. “You have to pay to play there, but we're suggesting clients allocate more resources to other channels, as well.”