Advisers still leaving wirehouses but there's no exodus

Strong profit from asset fees, potential regulatory changes keep most reps in their seats

Oct 31, 2013 @ 12:01 am

By Trevor Hunnicutt

Financial adviser headcount at the big four wirehouses has declined less than 2% in the last three years, and some industry observers see signs that fewer brokers will be leaving in the future as new regulations take effect.

As of Sept. 30, the country's top wirehouses employed 54,445 advisers in total, according to data reported by the firms. Those adviser forces helped those firms, including Bank of America Merrill Lynch, Morgan Stanley Wealth Management , Wells Fargo Advisors and UBS Wealth Management Americas turn in strong profit growth for their wealth management businesses in the third quarter, based largely on the fee revenues they take in.

Those same firms have mostly maintained the size of their adviser forces since the third quarter of 2011, according to data compiled by InvestmentNews. That contradicts industry predictions that wirehouse firms would inevitably lose advisers to attrition, lack of recruitment of young professionals and competition from independent business models. A recent report by the research firm Cerulli Associates Inc., for instance, predicted wirehouses would lose about 4.5% of their market share in the five years ending in 2016.


Morgan Stanley employed 16,517 advisers on Sept. 30, down from 16,829 at the same point last year. Merrill Lynch is in second place, with 15,624 advisers, down from 16,759 last year. Wells Fargo is holding even with 15,167 advisers, the same number as last year. UBS employs 7,137 advisers, up from 7,032 in 2012.

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Morgan Stanley, the top brokerage by head count, has lost about 9% percent of its advisers since 2010, when it had 18,119 advisers, according to data compiled by InvestmentNews. But Merrill and Wells have seen moderate gains from their 15,489 and 15,036 total advisers, respectively, in 2010. UBS has increased its staffing by more than 5% since the beginning of the decade, after starting with 6,783.

Adviser head count at wirehouses through 3Q 2013.
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Adviser head count at wirehouses through 3Q 2013. (InvestmentNews/Matt Sirinides)

Now the firms say they are seeing record-low attrition, and their financial statements point to a class of professionals far less dependent on charging sales-based commissions. Instead, they are increasingly relying on charging fees for managing assets that have steadily increased in value since the worst of the stock market rout in 2009.

Morgan Stanley's brokerage, for instance, earned more than 60% of its revenue in the first nine months of this year from asset management and related fees, up from about 50% in 2009, according to earnings statements. The firm and some of its competitors have reported cutting many of their low-producing advisers over the years.

Overall, the firms manage nearly $6 trillion in wealth, a sum equal to more than a third of the United States' gross domestic product.


Other factors are likely to keep wirehouse advisers in their seats, including a recent proposal by the Financial Industry Regulatory Authority Inc.'s board that would require brokers to disclose to clients the amount of incentive pay they receive to take new jobs.

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“What is really changing is this demand ... to disclose any financial package to their clients in a very transparent way,” UBS chief executive Sergio Ermotti said Wednesday. “That, we think, is going clearly to prevent or slow down the turnover of financial advisers in the industry.”

The banks say that change will mute the hefty incentives that firms pay to lure top talent, making higher profit margins likely.

“This is not something you will see on a quarter-by-quarter basis,” said Mr. Ermotti. “It will take time.”

James Gorman, chief executive at Morgan Stanley, and John Thiel, who runs Merrill Lynch's U.S. wealth management business have struck a similar tone in recent weeks on how the disclosure rule could impact recruiting.

Other forces could challenge how well the wirehouses will retain top advisers and their clients. For one, wirehouse advisers are the industry's oldest, averaging nearly 53, and they're largely not being replaced by young talent, according to Tyler Cloherty, who prepared a report on the topic for the Investment Management Consultants Association Inc.

The big firms must also compete with the lure of going independent, or leaving behind an established brand and way of doing business in exchange for the promise of more freedom, as well as new hybrid models provided by firms like Dynasty Financial Partners and HighTower Advisors.

“As more models are born that really put the driver back in control, the more you may see advisers leaving,” said recruiter Mindy Diamond, president and CEO of Diamond Consultants.

But some argue that the independent model will not work for all advisers, leading many to opt to stay with the wirehouse model.

“When they go right to the edge and they figure they've got to pick out the wallpaper and pay the bills, they're going to stay in that universe,” said a recruiter who works with both the wirehouse and independent channels and asked for anonymity to avoid offending his clients.


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