It's hard to imagine that in 2009 brokerage stocks jumped 67 percent. They've had a less successful 2010, of course, with some ETFs down double digits at the time of this writing. And that makes sense. The Dodd-Frank legislation is being rolled out and new rules are being written that might substantially dampen brokerages' profitability (capital requirements are going up, proprietary trading and investments in hedge funds will be severely curtailed, etc.) James Gorman, the boss over at Morgan Stanley, has already stated that the master-of-the-universe culture around traders has to stop, and that compensation be less gaudy.

The Dodd-Frank rules mostly affect the other side of the house, the institutional side. The one big outstanding issue for retail financial advisors: A fiduciary standard for FAs is being considered. Brad Hintz, the respected analyst at Bernstein, says, “A fiduciary standard for FAs means tighter central control, more gatekeepers and an increase in the number of independent advisors.” Further, he expects the number of independent FAs to increase by 10 percent in 2011 and another 10 percent in 2012.

Could the great migration of FAs out of wirehouses be upon us? It's been predicted for years, but it has been a slow trickle. Hintz reckons that by 2012, independent advisors will represent about 46 percent of the FA population (up from about 40 percent in 2005). But the money has traditionally been held at the wirehouse firms. We will be watching the emergence of this trend carefully. Because, right now, Hintz says the Big Four — Merrill Lynch, Morgan Stanley Smith Barney, Wells Fargo Advisors and UBS — along with Schwab account for 60 percent of all mutual fund sales.

Just as importantly, how will ETFs hit the big distribution channels? They don't carry upfront loads or trailing fees. Over the long run, ETFs are going to continue to attract retail money and “impair the profitability of the distribution channels,” as Hintz puts it.

In the following 11 pages we examine some of the major trends that will affect the retail financial advisor.