The four wirehouses have lost substantial market share in both assets under management and in adviser head count over the past three years, according to Cerulli Associates Inc. research. And the trends will continue, said Scott Smith, an associate director at Cerulli.
The firm's latest research shows that the wirehouses' share of retail assets under management fell from 49.7% in 2007 to 42.8% at the end of last year. The distribution channels posting the biggest gains in asset market share were independent broker-dealers (now 17.6%), registered investment advisers (16.9%) and regional broker-dealers, (14.8%).
More worrisome to reps at the wirehouses: The number of advisers employed by the four companies — Morgan Stanley Smith Barney LLC,
Bank of America Merrill Lynch,
Wells Fargo Advisors and
UBS AG — fell from 56,901 to 50,742 over that same period. The figures do not include advisers on the Merrill Edge platform, which serves customers with less than $250,000 in assets, nor
Wells Fargo's Finet channel for independent advisers.
“The numbers reflect a combination of growth in the independent channel and an increased focus by the wirehouses on the productivity of their advisers,” Mr. Smith said.
With leaders at the large Wall Street firms determined to raise margins in their wealth management operations, he expects head count at the four firms to decline by another 6,800 advisers over the next five years. “They could cut another 10% or more of their adviser forces,” Mr. Smith said.
While approximately 20% of those who leave will be breakaway brokers departing voluntarily, the greater number essentially will be shoved out the door.
James Gorman, CEO of Morgan Stanley, for example, is determined to raise pretax profit margins in the firm's wealth management operations from the current 11% toward his target of 20%. This week, the firm made changes to its adviser compensation grid — raising the penalty box threshold from $250,000 to $300,000 for lower-producing advisers. Those who don't meet the new production targets will see their payouts drop to 20%.
“The wirehouses see themselves better off with one $1 million producer than four $250,000 producers,” Mr. Smith said.
The changes occurring at the wirehouses pose challenges for asset management firms looking to sell through the channel as well, said Mr. Smith. While the high average assets under management of wirehouse advisers — currently $94 million —makes an attractive target for fund firms, the competition for them is getting a lot more intense.
“The most attractive broker-dealers know it and they try to extract as much as they can from their asset management partners,” Mr. Smith said. “It becomes a question of what you're willing to pay for access to those high-level platforms. Some firms might be better off spending their resources elsewhere.”
