Wirehouses to Remain Largest Distribution Channel

Cerulli Associates projects that in 2013, the wirehouse channel will remain the largest distribution channel, despite significant decline of assets under management (AUM) from 43% in 2010 to 35% in 2013.

Although there was significant market turmoil, the financial adviser industry grew from just less than $11 trillion in 2007 to $11.2 trillion in 2010. Wirehouse assets, however, dropped from $5.5 trillion to $4.8 trillion during that same period.

“The years since 2007 represent a worst-case scenario for the wirehouses, as these firms were punished by the bear market and their perceived role in the financial crisis,” said Bing Waldert, director at Cerulli Associates.

Though the four wirehouses (Bank of America/Merrill Lynch, Morgan Stanley Smith Barney, UBS and Wells Fargo Advisors) face significant challenges, Cerulli research shows these firms are still the best capitalized in the industry. Furthermore, Cerulli contends a decent portion of wirehouses’ recent share loss can be attributed to planned attrition, as wirehouses forced out lower producing, less profitable advisers.

“The most logical path to the future growth of wirehouses is through their largest adviser teams,” said Waldert. “Not directly via organic growth, but rather by supplementing these teams with junior advisers in order to free the principal advisers to continue their focus on business development.”

“There are two cautionary warnings, however,” continued Waldert. “First, it must be understood where these advisers will come from if these firms are not successfully hiring new advisers into the industry. Second, given the number of flexible options for an adviser, any cost-cutting in the name of profits that affects these advisers’ businesses could cause them to leave the firm if they feel that they are not being adequately supported.”