Wirehouses are losing customers, assets and, according to some analysts, their brokers as affluent investors increasingly turn to independent channels for advice.
Ultra-wealthy investors are using registered investment advisors - including investment managers, independent advisers and accountants - rather than wirehouses like Merrill Lynch as their primary financial advisers, according to Spectrem Group of Chicago.
Thirty-eight percent of households with more than $5 million of assets used an RIA as their primary financial aide, up from 30% in 2001, and 33% put a wirehouse in this role, down from 37%.
Investors classified as "affluent," those with more than $500,000 of investable assets, are also working more closely with independent advisers. From 1998 through 2004, independent advisers have increased the wealth they manage for affluent people by 45.5%, to $1.6 trillion, Spectrem data shows, while wirehouses have expanded their assets under management by 16.7%, to $2.8 trillion.
Ann C. Marhdt, a principal with the research firm, which specializes in helping financial service companies target the affluent and retirement markets, said the recent bear market's fallout has left affluent and ultra-wealthy investors "looking around" for advice from new sources - thus giving independent advisers an opportunity to drum up business and wirehouses a chance to change their approach.
The Total Picture
"We are seeing different types of advisers getting a lot of interest," Marhdt said. "People like accountants are becoming primary financial advisers" due to the fact that the wealthy are becoming far more discerning about "their entire financial picture."
"Some of these full-service brokers at wirehouses previously were only interested in seeing [a client's] investable assets," the Spectrem principal said.
Some wirehouses are beginning to understand they need to be full-service partners, much as many mutual fund companies already know. Thus, advisers at wirehouses are working to become qualified to take a more holistic view of people's portfolios, she said.
"Investors and advisers are moving away from the transactional model of investing," she added. "Advisers are no longer just interested in investable assets. They need to be part of the whole portfolio to maintain their roster of customers."
Erik Hendrickson, Merrill Lynch spokesman, said the firm is developing a culture of financial planning through its Total Merrill platform, which it launched in January 2003 as a retail account to appeal to banking customers looking for cash management and mortgage services.
More recent internal client polls indicate that satisfaction with financial advisers among households with $1 million to $10 million in assets is "near [an] all-time high," Hendrickson said.
Concern Over Conflicts
Wirehouses are losing assets and advisers, both, agreed discount brokerage executive John Beatty, senior divisional sales manager at the Schwab Institutional unit of Charles Schwab, said wirehouses have lost some wealthy people's assets because of concerns about objectivity and conflicts of interest. Many brokers are leaving the wirehouses, he added, to start independent financial planning firms.
Certainly, this is not a new phenomenon, he said; it has gradually gathered force during the past eight years. The number of advisers leaving wirehouses to become independent doubled in the past year, continued Beatty, who expects another doubling next year.
"Brokers would like to move further. They want to go independent and be able to provide the best-of-breed products to their customers," Beatty said. "to do that, they need to be independent, and more and more are moving in that direction."
Schwab Institutional is among several companies offering a platform of products and back-office services to independent advisers. Bank of New York's Pershing unit, for instance, offers similar services. Schwab's platform for advisers, which has about 5,000 adviser clients managing $365 billion of assets, is growing quickly as advisers leave other companies to go independent, Beatty noted.
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