With the past year’s decline in the markets, assets are shrinking in the wealth management business. But some quarters of the industry are feeling it more than others—namely the wirehouses—says a new report from the Boston-based Aite Group, titled “New Realities in Wealth Management: Ready for Sea Change?”

"Our market data suggests a significant shift toward both the independent advice model and use of self-directed brokerage platforms," says Douglas Dannemiller, senior analyst with Aite Group and co-author of the report. "As a result, the independent broker/dealer and registered investment advisor segments have both gained market share at the expense of the dominant wirehouse firms."


At the end of 2008, client assets at wealth management firms had declined 22 percent to $10.8 trillion from $13.8 trillion a year earlier. Of course, that’s better than the 40 percent decline in the S&P 500 over the same period. Early 2009 didn’t provide much relief: Assets fell another 9 percent to $9.8 trillion in the first quarter.

Wirehouse firms—Bank of America Merrill Lynch, Morgan Stanley Smith Barney, Wells Fargo Advisors and UBS—were hit hardest, with assets down 25 percent last year to $4.2 trillion from $5.7 trillion in 2007. This is at least in part because of all of the mergers and acquisitions on Wall Street, says the report. Only UBS’s brokerage unit has not changed hands since the crisis began. Between the start of 2008 to the end of the first quarter of 2009, Merrill Lynch, Morgan Stanley, and Smith Barney recorded combined net asset outflows of client assets totaling $150 billion, and combined rep count at the firms plummeted by about 6,000.

“So much happened during that time period,” says Dannemiller. “There was tons of M&A, especially at wirehouses which faced the most difficulty. Now, firms are trying get back on their feet and regain their focus.”

By comparison, client assets managed by firms Aite defines as self-clearing regional brokerage firms, such as LPL Financial, Ameriprise, RBC Wealth Management and Edward Jones, dropped just 12 percent to end 2008 at $1.5 trillion. These firms have also been winning the battle to build their advisory forces at the expense of wirehouse firms, says the report, adding 3,000 financial advisors in 2008 alone. Edward Jones hired 50 percent of those while LPL and Ameriprise gained 18 percent each.

Meanwhile, the RIA channel saw client assets fall 13 percent to $1.2 trillion from $1.4 trillion in 2007. Schwab captured more than half of those assets, and Fidelity another quarter. Online brokerage assets also declined significantly—down about 25 percent to $1.8 trillion from $2.3 trillion in 2007. However, the Aite Group estimates that the online brokerage group (Charles Schwab, Td Ameritrade, E*Trade and Fidelity Investments) added about $100 billion of new client assets last year. TD Ameritrde saw a 9 percent increase in the number of accounts in 2008 and a 2 percent increase in the first quarter of 2008.

Of course, the wirehouse channel, with its 62,500 advisors and 40 percent of all U.S. wealth management assets, is still in pretty good shape. The book of business of a wirehouse rep manages is typically more than twice the size of that managed by an advisor outside the wirehouse, and about equal to the book of an advisor at an RIA firm. “Right now, wirehouses are trying to hold the line on assets. Their first priority is to keep the most profitable advisors. And they’ve done a fairly good job of that with the retention bonuses they’re offering,” Dannemiller says.

But while they spend their time retaining their best producers, wirehouses are losing assets and revenue to the next tier of firms. During 2008, wirehouse firms lost 2.1 percent of their market share, representing an $225 billion in assets.

“The favored big advisors get nice retention packages while others in the bottom one third don’t,” says Dannemiller. “It’s interesting though, because those advisors are sought after in the next level of firms. That’s fueling a lot of the movement. Producers with about $300,000 or $500,000 in revenue will get that attention they’re not getting at wirehouses.” Advisors of that size also tend to bring with them a greater chunk of their client assets—about 75 to 80 percent of their book. (Larger advisors who depart from a wirehouse can bet their high net worth clients will be contacted by the firm’s management.)

Indeed, non-wirehouse brokerage firms and RIAs grabbed between 0.1 percent and 1.5 percent additional market share last year. The RIA group now manages about 10.8 percent of the wealth management industry’s client assets. And leading RIA custodians have reported that 311 advisor teams set up RIA firms in 08, representing $24 billion in breakaway assets.

When the markets rebound, firms with expanded advisory forces are likely to gain further asset share, says Aite’s report. The challenge for these firms, says Dannemiller, is to increase the average size of their reps’ books of business.