Wirehouses are projected to lose $188 billion in client assets this year due to adviser migration, according to a new report from Cerulli Associates. And those losses are expected to continue over the longer term as well.
The channel's market share of assets under management will decline to 40.7% by 2012, down from 47% as of year-end 2008, according to the report. Wirehouses will still dominate the market, but the downward trend will continue as more advisers seek out the independent channel.
Scott Smith, the analyst who wrote the report, said the main driver behind these moves is brand erosion of the wirehouses. "There's a lot of investor dissent [at the wirehouses]. Some advisers told me that their clients said 'What took so long?' when they moved."
At the same time, the independent channel, which includes independent broker/dealers, registered investment advisor firms and dually registered advisors, are gaining market share. The independents will nearly match wirehouses' market footprint by 2012, with a 39.3% share of assets under management, the report said.
This year's decline is just part of the industry's overall adviser migration that will put $800 billion of client assets in play as advisers move from job to job.
For wirehouses, the diminution of headcount will be significant. By 2012 they will account for 13.7% of the job market, down from 20% as of the end of 2008, the report predicted. But that may not be all bad news. "While this represents a significant loss, we expect the wirehouse adviser of the future will be relatively more productive, resulting in a highly effective and profitable sales force," Smith said.
For instance, the report cited the joint venture of Morgan Stanley Smith Barney as being in an "enviable position of being able to select top talent from two skilled organizations." The firm will be able to capitalize on a position as a "pure play" for wealth management-focused advisers, the report said.
However, the picture isn't quite as rosy for a couple of its competitors. The report said Bank of America's controversial purchase of Merrill Lynch could threaten the historic dominance of Merrill's sales force. The report also stated that there is a concern about UBS among both advisers and product manufacturers about how the corporate ownership of that firm will play out over the next several years.
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