For a minute or two at a recent SIA conference in Boston, Morgan Stanley’s John Schaefer sounded optimistic, saying he envisioned a time when "advice can once again be a growth business."

He then proceeded to list a fistful of reasons why no one in the brokerage industry would have any cause for celebration any time soon. Schaefer, head of Morgan Stanley’s private client group and keynote speaker at the SIA’s retail management conference in Boston, said that while the need for advisors was increasing in the marketplace, the regulatory environment, retail climate, need to lower costs and ongoing bad news in the industry would continue to hurt business for some time.

At one point, Schaefer pointed out that the recovery in retail business usually takes "about two to three times the length of time it takes the market to get back to the top." By his estimation, then, assuming the S&P 500 reaches highs not seen since 2000, the retail market would not recover fully until 2011. Not a pretty picture. And so a massive build-up in spending isn’t something to expect anytime soon, he said.

"We were always investing…Now, we cannot spend money hoping the revenues will be there, and we have to avoid the temptation to build costs before the revenues are obvious."

Attendees at the SIA’s annual gathering of regional executives felt similarly. Michael Kostoff, executive director of the VIP Forum in Washington, a consulting group to the financial services business, said that broker/dealers need to be aware that spreads are likely to continue to decline as costs of doing business continue to rise.

Total annual fees from advisory assets in 1990 were about 1.03 percent; in 2000, they were 0.98 percent. But his model estimates a decline to about 76 basis points, or 0.76 percent, by 2010. Meanwhile, the median compensation for a "relationship manager" rose to $92,000 in 2000-2001 from $65,500 in 1994-1995, a 40 percent increase.

"We continue to expect pricing to collapse," Kostoff told the audience. "As we continue to shift to fee-based products, they’re becoming more commoditized. Get ready for life at 75 basis points."