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 year-end 2007 to year-end 2011, 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%, the Cerulli data show. And Cerulli expects those firms to lose another 6.9 percentage points of share by the end of 2014, leaving them with an estimated 34.2% of the market.
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The grim projections mean drastic changes for wirehouse advisers.
“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,” he said. “We're seeing a lot of advisers at the bottom end leave the wirehouses.”
Far more alarming for the big Wall Street firms is the competition emerging on the high end from registered investment advisory firms. “We expect the wirehouses to lose assets on both the low and high ends,” Mr. Cloherty said.
The platforms at the custodians have improved enormously over the past few years, and wealth management service platforms being offered by firms such as Dynasty Financial Partners LLC and HighTower Advisors LLC are encouraging more 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.
The biggest beneficiaries of the decline will be regional brokerages, dually registered advisers and RIAs. The Cerulli report estimates that they will pick up 3.5, 2.4 and 2.2 percentage points of market share, respectively, over the next three years.
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,” he said. “You have to pay to play there, but we're suggesting clients allocate more resources to other channels, as well.”
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