Wealth Managers are Moving Away from Big Banks to Independent Multi-family Office Practices

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Call it "wealth management" in motion as financial advisors and private bankers flee the big banks and wire-houses for smaller Registered Investment Advisor (RIA) multi-family office practices, according to Cerulli Associates.

As providers serving high net worth (HNW) investors, wire-houses are continuing to experiencing a loss in marketshare, and by 2014 their share of the high net worth market will be a total of just 42 percent, down from 45 percent today, Cerulli Associates said. That's a 14 percent drop from its 2007 peak when the share of high net worth business held by Bank of America/Merrill Lynch, Morgan Stanley Smith Barney, Wells Fargo and UBS was 56 percent.

What’s going on?

Following the financial crisis, wealthy investors expanded the number of firms with which they hold assets, including advice providers, Cerulli explains. Some of these investors pulled assets from the wire-houses as these firms flirted with insolvency during the market crisis, according to the Boston-based research company. And of course, some financial advisors departed as well for firms in other channels and took their clients with them.

These smaller private client and independent advisor firms were seen as providing a safe haven for nervous investors and advisors that were ready to make a move. And they have “aggressively ramped up their hiring in the HNW space," said Rob Testa, lead analyst for Cerulli's HNW research.

It seems that outside of their private wealth practices, wire-houses have lost ground on a couple of fronts. Recently, Cerulli also observed the fastest growth in any segment of the advice space is found in RIAs multi-family offices practices, which grew their assets under management at a rate of 18 percent during 2010.

In contrast, wire-houses grew their assets at a rate of just 2 percent over the same time period, says Cerulli.

Most of the largest institutions have focused on HNW, observed Scott Smith, head of Cerulli's intermediary practice.

In fact, “Only seven firms out of the top 20 have built their rapidly increasing assets around core clients with less than a million in investable assets. Most are focused on the HNW segment. Rapidly growing high-net worth providers represent large sales opportunities, but require institutional level due diligence and support," Smith said.

"Moving forward, we expect RIAs to adopt more formalized procedures for security selection approval,” he added.