The Rise of the Boutiques

Boutique and hybrid firms are primed for growth in coming years as wirehouse advisors seek a greater degree of independence, according to a study from Cerulli Associates.

The Boston-based consulting firm predicted that the largest employee broker-dealers and wirehouses would remain dominant, but that a channel of smaller, niche firms would emerge as a strong competitor and lure in top talent in the coming years.

“There is significant opportunity for both existing providers and potential new entrants to create profitable franchises in the boutique segment,” Scott Smith, director at Cerulli Associates, said in a statement. “The largest firms in the industry will continue to cede market share, which will largely benefit more independent channels as advisors seek to control more of their revenues and business models.”

Those models will appeal to advisors who are looking for a level of independence with the backing of a larger support network, Smith said in an interview.

“They don’t want to be a part of a 40,000 person brokerage, but also they don’t want to worry about who’s paying health insurance and who is fixing their computer,” he added.

Most of the movement will occur among above-average advisors with over $36 million in assets under management, he said. Those advisors may continue to look to team up with existing boutique firms such as HighTower, Dynasty Financial Partners and SeaCrest Wealth Management, or start their own boutique firms.

“It’s the breakaway revolution’s next step,” recruiter Danny Sarch of Leitner Sarch Consultants said. “There’s so much management talent out there that is trying to figure out how they can be successful in the business they know best and that’s led to this. They see success of the ones who have made it so far.”

This year, for example, HighTower has added 11 advisor teams, mostly from the wirehouse segment. The firm, which was founded in 2008, has added 37 teams total, dozens of which have come from the wirehouse segment, including two former managers HighTower brought on to further develop recruiting efforts.

“Everybody’s competing for the same people, and because the wirehouses are the biggest target, everybody is targeting them -- both each other and these outside models,”Sarch said.

The growth of the boutique channel in recent years has benefitted from technology developments that make it easier for independent firms to scale operations and compete with the wirehouse channel, according to Smith.

“Each of the wirehouses has a tremendous desktop system,” Smith said. “But there’s very little that you can’t get from a Schwab or Fidelity that you can get at a major wirehouse.”

In a separate survey, Cerulli has predicted that wirehouses could lose as much as seven percent of their market share over the next few years, and Smith predicts a large part of those departures could find their way into the boutique channel.

“The numbers that you’re losing aren’t catastrophic,” he said. “It’s not 100 on a weekly basis, but you have one go to HighTower one week and another to Dynasty next week. It’s a slow reduction by 1,000 cuts.”