B-D advisers had a soft landing in the first half, despite bear market

The first half of the year was a dire period for the stock market and the investing public. The bear market was back! Be scared! Run away!

Headlines blared that the broader market, with the S&P 500 down 20.6%, was off to its worst start in 50 years — back when the Watergate break-in had just occurred and teens were still hoping The Beatles would get back together.

That's a long time ago. So why doesn't the market downturn feel more historically awful for financial advisers, like the dot-com bust of 2000 or the mortgage crisis of 2008?

The first half of the year was a terrible start, but not for all in the broader financial advice industry, with its 320,000 professionals licensed to sell securities at broker-dealers or registered investment advisers.

Indeed, financial advisers who work at large brokerage firms — think LPL Financial, Ameriprise Financial and Wells Fargo Advisors — didn't crash and burn, despite the market's swift and sharp decline. Instead they had a pretty soft — though a bit turbulent — landing over the first half.

That much was evident from the financial results reported recently by the three companies cited above. They can act as stand-ins for the rest of the financial advice industry — they account for roughly 42,000 financial advisers, after all.

To reiterate: The S&P 500 was down almost 21% for the first half of the year, so average revenue per adviser on a rolling, 12-month basis should have taken a severe hit. But that didn't happen — most likely because of the recent spike in interest rates. Big firms and financial advisers had also created a built-in revenue cushion of sorts as a result of last year's record stock market highs and record profits raining across the wealth management industry.

LPL Financial this month reported annualized revenue per financial adviser at the end of June of $308,000, down 5.5% from the end of last year, when it was $326,000.

Ameriprise Financial and Wells Fargo Advisors actually reported increases; Ameriprise uses the metric of adjusted operating net revenue per adviser, while Wells Fargo Advisors calls it annualized revenue per adviser.

For the end of June, Ameriprise reported $814,000 of revenue per adviser, an increase of 2.3%, and Wells Fargo Advisors cited a bump of 3.6%, to $1.21 million.

These numbers aren't static, of course, and some in the industry don't trust how the large firms do their math when it comes to financial adviser head counts and revenue. And large brokerage firms offset revenue declines by recruiting new advisers and goosing advisers with compensation to add more new clients and assets.

In its fight against inflation, the Federal Reserve aggressively hiked interest rates this year, which helps increase revenue at brokerage firms, because they make money on clients' holdings of cash.

"Interest rates are going up, and the big firms make money on the spreads on money market accounts, cash balances and margin lending," said Danny Sarch, an industry recruiter. "Making money on cash spreads is a big deal. When you talk to the branch managers at the large firms, that's been one of their biggest challenges, what to do with zero percent interest rates."

The large firms have created a buffer of sorts to this downturn with their banking businesses and connections. The question is, what has happened to revenue at small or midsize registered investment adviser firms, which operate much more as pure asset managers than broker-dealers, which have a variety of revenue streams?

There's no way of knowing the extent of the pain those RIAs felt on their top line in the first half of the year. What we do know is the bear market of 2022 has not caused a crash landing for many financial advisers at large firms.