Wirehouses will continue to dominate the advisor industry for the foreseeable future, according to new research from Cerulli Associates.
Despite the tarnished brand names of the four wirehouses—and despite all the ballyhoo about the “breakaway brokers," Bank of America/Merrill Lynch [BAC], Morgan Stanley Smith Barney [MS], UBS [UBS] and Wells Fargo [WFC] still control 48% of advisor-managed assets in the United States, amounting to $3.9 trillion at the end of 2008, according to Cerulli.
RIAs ranked a distant second with 15% of the market, or $1.4 trillion.
The report also said that represent the largest sponsor of managed accounts with nearly $900 billion in assets as of the end of the second quarter of last year. The average wirehouse advisor manages $72 million compared to just $27 million for the average advisor industrywide, the report said.
In terms of advisor movement, the wirehouses are just as dominant. The so-called breakaway brokers “makes for good press,” Cerulli said, but it doesn’t accurately portray the industry. While technological advancements have given advisors more options when moving, the most common movement is still a change within the same channel.
Cerulli predicted that the total percentage of advisors employed in the independent channel will increase 1.5% to 2% annually from 2009 to 2012, ultimately accounting for about half (49.5%) of all advisors in 2012.
But that shift comes with a major caveat, according to the report. With this increase in the number of advisors, there is “likely to be erosion in the quality of advisors in the channel."
The early entrants into the independent channel were successful at starting their own practice, but the newer entrants are not at the same quality level.
“There is an ongoing shift to independence, but it’s not a sea change,” said Scott Smith, the Cerulli analyst who wrote the report. “The wirehouse advisor going independent is still the exception to the rule... the [advisor] who goes from Merrill to Morgan Stanley and takes a $3 million check along the way is more the norm.”
Alois Pirker, the research director at Aite Group said that the breakaway broker trend of last year has slowed significantly as the outlooks of the big banks improve. The “question of headcount is a big one,” he said, but the big companies are looking to add more advisors in the near future, which will offset the losses of the breakaway brokers.
Howard Diamond, the chief operating officer of recruiting firm Diamond Consultants, said another difficulty in going independent is simply the time required. It can take nine to 12 months to get set up as an independent advisor, he said. So the advisors who feel like they just have to move immediately are likely to end up in another wirehouse where they at least “speak the same language,” Diamond said.
Still, he said that from his perspective, there has indeed been a lot more interest, and more discussions, from advisors in making that jump over the past year.