It was almost seven years ago that I predicted the demise of the big brokerage organizations, so the shotgun acquisition of Bear Stearns, the bankruptcy filing of Lehman Brothers, the sale of Merrill Lynch and the reformulation of Morgan Stanley and Goldman Sachs as banks simply confirmed a trend that started long before Prudential Securities was sold to Wachovia or Shearson or when Kidder-Peabody and Drexel Burnham Lambert went the way of all flesh. Some of you may remember the days when I wore a T-shirt to conferences that showed a group of dinosaurs, each bearing the name of a large brokerage firm. Only two of those firms still exist.

The End of Days

My reasoning at the time still holds. What was the purpose of these large institutions in our modern financial marketplace? We have independent RIA firms offering increasingly unconflicted financial advice. We have more than enough mutual funds to fill the void left by the wirehouses' high-expense, low-performance asset management divisions. I'm even having trouble seeing why the capital markets need somebody to underwrite the shares of new public companies, at a collusive cost of 7.5% of every dollar raised. Haven't we successfully tested Internet-based IPO auctions, which produce better pricing at a small fraction of the cost?

Meanwhile, discount brokerage firms provide less expensive access to the capital markets. And somebody will have to explain to me why we still have floor brokers when there are electronic trading exchanges that can eliminate the middleman. Even Nasdaq—a former subsidiary of FINRA—is doing away with this quaint ritual.

A number of my Inside Information readers have suggested that the global economy will miss the liquidity institutions created by packaging debt instruments into securities and by their willingness to stand on either side of complex derivative transactions. But I wonder how important those creative derivative or pooled investments really are when, routinely, every five to 10 years they seem to cost investors billions of dollars while nearly bringing down the global investment marketplace.

The trend was never the wirehouses' friend. The modern world has been evolving away from the sales model in an exploding variety of industries. We no longer have door-to-door Fuller Brush salespeople, nor lightbulb peddlers. Auto dealerships are increasingly moving to fixed-price models. Telemarketers are hampered by Do Not Call directories, and my last trips to the furniture store were guided by salaried (not commissioned) staffpersons. My prediction years ago was that the financial services world would follow these broad trends, and that salespeople would be phased out in favor of professionals.

These past few years, the wirehouses exhibited a sense of almost comic desperation. Instead of remembering all the great service that these larger firms provided their customers in a bygone era, people will inevitably think of brokerage executives in terms of the greedy deals they put together with 30-to-one leverage and the executive compensation packages that ran to tens of millions of dollars, even as those same executives were being shown the door for losing billions in shareholder assets.

What We Will Miss

So I don't mourn the demise of the Wall Street giants; indeed, I look forward to the inevitable day when they, like dinosaurs, no longer shadow the landscape. But now is a good time to recognize what effects this mass extinction will have on the rest of the financial services ecology and prepare for some inevitable disruptions.

For example, during the next year, a lot of great brokers who were brought into the business by those now-failing firms will get the chance to join the fiduciary world and set up their own shops. Not all of them will take the opportunity, but the best of them will, and the planning profession will be the better for their migration. This will mean more fiduciary competition for existing advisory firms, but it may also provide them with an influx of qualified senior employees or partners.

There will be some negative consequences as well. Love or hate them, the brokerage firms provided virtually all of the training for new advisors in the financial services world. A lot of planning firms still routinely advise young college graduates to get experience at one of these firms, get their feet wet and come back in five years. All of that free training is about to go away. This may be good for consumers (no rookies cold-calling during dinner), but not so great for advisory firms who never developed their own in-house training programs.

We'll also miss the advertising. The brokerage firms allocated a generous portion of their profits to marketing campaigns that communicated a powerful ideal of what financial planning and financial services should be. With extraordinary creativity, they built consumer demand for that wise counselor who could help you finance your daughter's dream wedding and your once-in-a-lifetime vacation around the world. Who among us is going to dig into his or her pockets to pay to air that message during the next Super Bowl?