Influential Sanford Bernstein bank analyst Brad Hintz thinks the wirehouses are going to be big beneficiaries of a recovery in the retail-wealth-management industry over the next two years.
“We think the light at the end of the tunnel is finally approaching,” he wrote in a recent report on the industry. “We are bullish on the industry and most optimistic on the wirehouse channel.”
His main reason for liking the big Wall Street firms is an expectation that the retail market cycle “appears to be improving after five long years.”
With current forecasts for U.S. employment growth, he anticipates retail wealth creation to continue growing over the next several years. Sanford C. Bernstein & Co. LLC estimates that U.S. households held $27 trillion in liquid financial assets at the end of last year, and Mr. Hintz believes that that sum will grow at a 7% compounded annual rate going forward — 4% from market appreciation and 3% from organic growth. He thinks the wirehouses are well-positioned to benefit.
“The wealth is in the top 10% decile, and that's where the wirehouses are,” Mr. Hintz said. “These are massive franchises and marketing machines. They are a powerful group of companies.”
Mr. Hintz sees the main reason for the large market share declines in the wirehouse channel as fallout from the financial crisis. With all but
UBS AG undergoing major mergers since the crisis, the wirehouses have been busy integrating operations and restructuring their businesses.
“They've cut hiring, got rid of lower-performing advisers and narrowed their business model,” Mr. Hintz. said “I'm not sure they regret much of the market share loss.”
Mr. Hintz dismissed demographic threats and business model concerns often cited as reasons that the wirehouses were headed for a long-term decline in the industry. He expects that the wirehouses will get a good share of the assets rolled over from baby boomer 401(k) plans into individual retirement accounts, and doesn't think the huge wealth transfer to the next generation will hurt them, either. “The money won't disappear. It will move from one account to another, and the brands will recapture the money,” he said.
He also doesn't think the full-service integrated business model of the wirehouses is doomed to fail. “There is no transforming wealth management model that's changing the wirehouse channel,” Mr. Hintz said. “They have great platforms to deal with complex clients.”
