As a headhunter, I tend to define the war for assets in the wealth management industry in terms of where advisers leave and where they go. And the industry follows that very closely, too, since it is interesting and newsworthy when large teams move, regardless of the destination.
Advisers are very likely to take most of their client assets with them when they change firms, and the hiring firms (or enabling custodians) want the revenue that these assets represent. The war for talent, then, is really just a proxy for the war for client assets.
Like all companies, the public wealth management companies release their results every quarter. One of the metrics that everybody seems to follow is the count of the total number of advisers. The trend for the wirehouses is downward; there were over 60,000 financial advisers in the big four firms at the time of the financial crisis and now there are less than 45,000.
Unfortunately, we can't trust these numbers since these firms count all registered employees when they count the total number of advisers (in order to make their numbers look better) yet pick some arbitrary cutoff point when they calculate the average production per adviser (in order to make those numbers look better). When a CEO tells analysts on his quarterly call that this particular firm is net down 50 advisers for a quarter, nobody asks whether this is "natural" attrition (death, terminations, retirement) or "recruited away" attrition. Did the firm recruit 10 advisers for the quarter, and lose 60, resulting in the net 50 down or did they recruit 50 and lose 100? What was the revenue effect of those losses and what was the net asset effect?
The Wall Street Journal recently published an article about Charles Schwab, another public wealth management firm. It reported that Schwab had net new assets for 2018 of $228 billion, or the astounding total of $624 million per day.
Let's compare these numbers to the publicly reported net asset numbers of three of the wirehouses. I'm excluding Wells Fargo because of the "scandal" factor. Merrill Lynch, UBS, and Morgan Stanley supposedly enjoy excellent reputations with the investing public. Without a scandal to provide an excuse for assets leaving, these firms are competing with each other every day both for advisers and for client assets. Though advisers at all of these firms tell me that they are not truly in the same niche as Charles Schwab, the numbers suggest that they are losing a war that they are not even acknowledging that they are in.
UBS reported net assets out of their firm in 2018 of $4.1 billion. Merrill, as widely covered in the trade press, created lucrative incentives for advisers who grow their business and penalties for those who do not. In 2018, the first year with these incentives in place, Merrill netted $34.4 billion in new assets. Morgan Stanley, I'm sure, is proud that their advisers netted $66 billion in new assets.
Now go back and re-read the Schwab number. Schwab brought in three-and-a-half times as many assets as Morgan Stanley, and six-and-a-half times as Merrill Lynch. In seven days, Schwab brought in as many assets as UBS lost for the entire year.
Schwab proudly advertises and supports a consumer model where clients can deal directly with Schwab. It also has the largest RIA business where independent firms custody their client assets at Schwab. Both of these models are included in the totals. The wirehouse adviser who does not think that he or she is competing with Schwab is simply wrong; Schwab is competing with everyone, and Schwab is winning.
Vanguard and Fidelity are two other giants in the space with assets that dwarf the wirehouses. So while the CEOs of the wirehouses can obfuscate both the average productivity and the absolute number of their advisers, there is no hiding from the asset numbers. Everybody benefits or suffers from the same market conditions. Therefore, the relative comparison of incoming and outgoing assets among the various wealth management competitors is always relevant and a more accurate measure of the health of the underlying business.
Many of the wirehouse advisers and their managers whom I speak with every day dismiss independence as a fad, and claim that Schwab, Fidelity, and Vanguard are not competing for the same clients as they are. However, the shrinking number of advisers in the big firms along with the slower growth of assets suggest that wirehouse leadership and their advisers are both like the proverbial frog in the boiling water. And it's getting pretty warm.
Danny Sarch is the founder and owner of Leitner Sarch Consultants, a wealth management recruiting firm based in White Plains, N.Y.