Thinking of Going into Wealth Management? You May Want to Think Small

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The Wealth Management units of the major wirehouses will continue to lose assets to smaller investment advisor companies over the next three years, says a new report from Cerulli Associates.

Between 2007 and 2011, the asset share of the four largest wirehouses — Bank of America Merrill Lynch, Morgan Stanley Wealth Management, UBS Wealth Management and Wells Fargo Advisors — dropped to 41.1%, from 47.8%, according to the data.

Cerulli is expecting those firms to lose another 6.9 points of share by the end of 2014, leaving them with an estimated 34.2% of the market.

“The wirehouses are looking for smaller, more productive adviser forces,” Tyler Cloherty, a senior analyst with Cerulli, told Investment News recently.

“They want to get to 20% profitability, so they've been changing compensation and moving away from mid-tier advisers and mass-market clientele," added Cloherty. "We're seeing a lot of advisors at the bottom end leave the wirehouses.”

Meanwhile, industry “aggregators” like United Capital and High Tower are helping independent advice givers to make the move away from the wirehouse model.

The third quarter of 2012 brought 10 merger/acquisition deals in the Registered Investment Advisor (RIA) space, accounting for $6.13 billion in assets under management (AUM), according to new data Charles Schwab released this week.

Schwab reports:

  1. The year-to-date AUM for M&A deal activity in the RIA arena reached $42.3 billion at the end of the third quarter, “which nearly eclipses last year’s AUM total of $43.9 billion”;
  2. Ten (10) transactions were completed in Q3, totaling approximately $6.1 billion in AUM; and:
  3. National acquiring firms continue to be the dominant buyer category, closing seven deals this quarter, bringing the total transactions completed up to 19 for the year.

That activity might have been still stronger if not for the upcoming election and related uncertainty, said Jon Beatty, senior vice president, sales and relationship management, Schwab Advisor Services.

“While national acquiring firms remain dominant players, RIAs as acquirers have been sitting on the sidelines waiting for the right opportunity," Beatty said.