The last quarter hasn't been great for retail brokerages. Low trading activity and geopolitical uncertainty kept investors on the sidelines, and advisors are feeling the pinch.

“We're seeing a mean reversion in revenues and profits,” says Frank Fernandez, chief economist at the SIA, who added that 2003 represented a bounce back that is now slowing. “We're in a sideways period — I don't think anybody will tell you growth is accelerating right now.”

As a result, not all of the major firms are adding brokers, as many had expected. Merrill Lynch and Morgan Stanley had a net gain of advisors for the third quarter, but Smith Barney was essentially flat and Wachovia showed a net loss.

In Morgan's retail brokerage arm, pretax profits fell 88 percent from the second quarter, from $132 million to $22 million and net revenues dropped 7 percent. Total client assets at the firm fell by $3 billion to $576 billion.

In Merrill Lynch's global private client group, net revenues were down 4 percent from the second quarter to $2.3 billion and unchanged from last year. Pretax earnings fell 9 percent for the quarter, and are down 11 percent from a year ago. Total private client assets edged up $7 billion for the quarter to $1.288 trillion.

Like Morgan, despite the downturn, Merrill continued hiring in the third quarter, adding 100 new FAs, bringing the total to 14,100, a 4 percent increase from 13,500 in third-quarter 2003.

At Smith Barney, revenues in private client services increased 2 percent on a year-over-year basis, but dropped 3 percent from last quarter. Profits also were down, falling 7 percent from the last quarter. Wachovia also reported declines. Its retail-brokerage segment reported earnings of $108 million, down 22 percent from the second quarter and 17 percent from a year ago. Revenue was down 7 percent on a quarter-over-quarter and year-over-year basis.

Smith Barney added two advisors in the third quarter for a total of 12,096, and Wachovia lost 55 advisors — the fourth-consecutive decline in advisors for that firm — to 7,964. A.G. Edwards showed a net decline of 27 advisors to 6,872.