It seems that every day there is a new story about wirehouse advisers looking toward independence, especially in light of the recent market events that have caused some distrust (see “Competition for Advisers Heats Up“). Cerulli reported new data validating this trend, but also notes that the financial advisory industry shouldn’t expect sweeping trends that wipe out structured wirehouses.
The move toward independence goes hand-in-hand with a trend in the advisory industry toward both fee-based advice and spending more time with clients to provide holistic planning (see “More than Investment Management: HNWIs Want Comprehensive Services“). Advisers surveyed by Cerulli said their number one goal this year is to focus more on comprehensive financial planning with clients. Most have already upped their phone calls and in-person meetings with clients in light of turmoil in the stock market (see “Advisers Gain Clients, Boost Communication Efforts“).
However, Cerulli noted that in some cases spending time with clients can be more difficult for independent advisers. That is because the principal adviser is also responsible for running a business. Wirehouse advisers also face challenges by losing client time to investment management activities such as business and trading, the Cerulli report said.
Cerulli said that the move from a wirehouse to independence is not for everyone. Those that succeed are “those that are able to make the philosophical jump from being an employee to being a business owner and accepting the responsibilities that come with business ownership.”
Wirehouses still Powerhouses
While the recent financial challenges at wirehouses has fueled speculation that the move to independence has accelerated, surveyed advisers are not planning drastic moves (see “Once a Wirehouse Adviser, Always a Wirehouse Adviser?“). Cerulli said many have predicted culture clash from mergers such as Merrill Lynch being folded in Bank of America, a more traditional banking operating (see “Merrill Lynch Stockholders Approve BoA Deal” and “Wilt & Team Set a New Course“). “This turmoil has led many to believe that the brand and value proposition of the New York wirehouses has been eroded,” the report said.
The numbers are there to back up a notable trend toward independence, but three-quarters of surveyed advisers do not plan to switch broker/dealers as a result of the turmoil. Wirehouse advisers are the most likely to consider a change (14%), but two-thirds of them do not plan on moving. Of those that do plan to move, a quarter of them are considering a more independent channel. Overall, 18% of advisers in all channels are considering a more independent model.
Wirehouses, such as Merrill Lynch, Smith Barney, Morgan Stanley, UBS, and Wachovia, remain “distribution powerhouses,” Cerulli said (see “Morgan Stanley Smith Barney Is Born“). Cerulli estimates that although the firms control only 20% of advisers, they manage nearly half the assets—so wirehoues are not going anywhere.
The survey results are reported in The Cerulli Edge—Advisor Edition. More information about purchasing the report is available at www.cerulli.com.