There have been a lot of headlines lately about the announcements by the wirehouses that they plan to reduce their number of advisors over the next few years. Surprising? No. Necessary? Yes. Behind the headlines, however, there is perhaps another story.
A recent survey by Cerulli Associates Inc. shows that the warehouses’ share of retail assets under management fell from 49.7% in 2007 to 42.8% at the end of 2010. (The warehouses are today defined as Morgan Stanley Smith Barney LLC, Bank of America Merrill Lynch, Wells Fargo Advisors and UBS AG; the above numbers do not include Merrill Edge advisors or Wells Fargo’s Finet channel for independent advisors.) As an aside, the regional brokerages and independents are picking up this market share.
The number of advisors at these firms, during the same time period, declined from almost 57,000 to just under 51,000. Cerulli estimates that 20% of these advisors left by choice and the rest were terminated.
So what do we deduce from these numbers? For one, the warehouses are obviously focusing more on productivity than share numbers; in fact, during this same period of time, the average AUM per advisor increased to $94 million. It no longer makes sense to be the biggest – what makes sense is to the best and most productive. With costs rising – both platform as well as total compensation (health care anyone?) – fewer, more productive advisors, makes business sense.
The implication for advisors is that the human cost aside, this trend actually increases competition. It makes sense to extrapolate that the remaining advisors will be the cream of the crop – the weak links are getting stronger.
The industry is getting smaller – and that is probably a good thing. For the individual advisor, however, this change will make it more competitive, not less – as counter intuitive as that sounds. The public perception of advisors is still negative and the market environment is still tough – these numbers don’t do anything to change that.
Advisors must continue to strive to differentiate themselves and clearly articulate their value-added proposition. After all, there are still more than 50,000 at the wirehouses alone!
