Cerulli Sees Advisor Assets Declining for the Big Banks to the Joy of Boutique Wealth Managers

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Cerulli Associates

Market share has been declining for banks in the financial advice space, says Boston-based financial services research firm Cerulli Associates, suggesting that the trend will continue into 2013 and will be more pronounced if banks don’t offer their core financial advisors additional support.

Cerulli projects that in 2013 the wirehouse channel will still be the largest distribution channel by a factor of nearly two. Nevertheless, the wirehouses have experienced a significant decline of assets under management since 2007, and it’s looking like the trend will continue.

The financial advice space grew to $11.2 trillion in 2010, from just under $11 trillion in 2007, but wirehouse assets dropped from $5.5 trillion to $4.8 trillion during the same time period, Cerulli says. It predicts that by 2013, the share of AUM held by Wells Fargo, UBS, Morgan Stanley and BofA Merrill Lynch will drop to 35 percent from 43 percent in 2010.

"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," Cerulli director Bing Waldert said in a statement this week.

Investment News quotes Waldert saying, “The advisory industry as a whole continues to rebound, but the four wirehouses, Bank of America/Merrill Lynch, Morgan Stanley Smith Barney, UBS, and Wells Fargo Advisors are not rebounding.

The comments were couched in bank-friendly terms, stating that while the four major wirehouses “certainly face significant challenges, Cerulli research shows that these firms are still the best capitalized in the industry.

“Furthermore, Cerulli contends that a decent portion of wirehouses' recent share loss can be attributed to planned attrition, as wirehouses forced out lower producing, less profitable advisors.”

But the data was quickly seized upon by advisor publications like Investment News, which stated, “The wirehouses have been losing market share hand-over-fist since the financial crisis.”

Cerulli’s official statement goes on to question whether or not wirehouses even care about market share losses, given that “Morgan Stanley Smith Barney, for example, has publicly stated that it is seeking a 20 percent profit margin from its wealth management business,” and that “both Morgan Stanley Smith Barney and Bank of America/Merrill Lynch have trimmed middle management layers” to save on costs.

Moreover, “both firms have aggressively cut lower producing advisors. While scale is essential to these firms, it may be that they want to serve only the most productive advisors.”

But, as one blogger noted, “Industry analysts at Cerulli say the four wirehouse firms lost 12 percent of their assets under management between 2007 and 2010 and are still fading from their once-dominant role in the markets.”

“They expect the declines to continue over the next few years while the rest of the industry keeps expanding," says Scott Martin of advisors4advisors.

Martin called this a reason for smaller firms to “rejoice,” whether or not the big banks are concerned with market share losses.

Waldert’s statement did contain some warnings for top banks, suggesting it’s time they offer more support to their key advisors.

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

"There are two cautionary warnings,” said Waldert. "First, it must be understood where these advisors will come from if these [wirehouse] firms are not successfully hiring new advisors into the industry.

“Second, given the number of flexible options for an advisor, any cost-cutting in the name of profits that affects these advisors' businesses could cause them to leave the firm if they feel that they are not being adequately supported."

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