Even though their numbers are shrinking, wirehouse advisors are becoming more productive, according to Cerulli’s report, U.S. Advisor Metrics 2021: Client Acquisition in the Digital Age. The research and consulting firm reports a double-digit percentage jump in AUM per advisor.
Wirehouses have lost asset market share over the last decade and are expected to lose more over the next four years. By that time, Cerulli predicts almost a third of the industry’s assets will be in the control of RIAs. The national/regional broker-dealer channel has passed wirehouses in headcount market share.
“That channel has stepped into the vacuum the wirehouses have created when it comes to advisor recruiting,” said Marina Shtyrkov, Cerulli associate director of wealth management. “We surveyed breakaway advisors and found that there is some substantial movement from the wirehouse to the national/regional channel. The national/regionals can offer a similar support structure, but a bit more choice and a more advisor-centric culture.”
She said advisors have raised concerns about the limitations and regulations that come with a wirehouse environment — pressure to cross-sell banking products, the inability to be paid on smaller client accounts, and compliance restrictions and guidelines managed to the lowest common denominator.
Lou Diamond, president of Diamond Consultants in Morristown, New Jersey, said the wirehouse environment may not be for everyone.
“The culture of the wirehouse starts with the training programs,” he said. “They’ve brought their advisors up, and it’s all geared toward client acquisition and growth. It’s a competitive environment, everyone striving to be the top producer in the office. But the programs are strong at helping advisors learn to prospect. Other channels don’t have these training programs.”
In fact, the primary challenges advisors most commonly cite are finding new clients, as well as compliance and technology. Wirehouses are employing large teams, with $500 million or more in AUM, to get over these hurdles.
“Advisors are frequently held back by competing priorities as they balance the daily needs of their clients and the operational aspects of their businesses,” said Shtyrkov. “Instead of vying for headcount, wirehouses have concentrated on solving these organic growth challenges.”
Shtyrkov said the main reason for the jump in wirehouse productivity is that wirehouses are focusing on advisors’ ability to work with more affluent clients.
“They are encouraging their advisors to work upmarket,” she said. “We’ve seen this constantly over the past several years. Wirehouses have adjusted their compensation payout grids to pay advisors only on client relationships above a certain asset threshold.”
Diamond agreed. “Wirehouses are really strong places for high net worth and ultrahigh net worth-focused advisors,” he said. “They can leverage an integrated platform — banking and lending, investment banking, corporate services like stock plans, administration, executive financial counseling. It’s a strong client acquisition tool, one-stop shopping.”
Shtyrkov said the wirehouses have pivoted away from handing out recruiting bonuses and are instead prioritizing organic growth of advisors.
“They recognize that assets are leaving because advisors are choosing the independent model, so instead of engaging in the recruitment game, they are shifting to making sure the advisors they do have want to stay and are the most productive they can be,” she said.
Diamond said the wirehouse allows advisors to keep their eyes on the prize in terms of developing new business and gathering new assets.
“The firm takes care of the middle and back office, HR, all stuff that could bog down the independent advisor. And when it comes to investing, wirehouses have model portfolios advisors can just plug in to and use. They don’t have to get into the weeds of investment management if they don’t want to. Everything is set up to make advisors more efficient, but advisors can lose creativity.”
Shtyrkov said the “capability gap” between RIAs and broker-dealers is narrowing. “There is virtually nothing that today’s RIA can’t offer that a broker-dealer can,” she said. “It’s undeniable that the wirehouses and large broker-dealers have the advantage of scale. They have vast institutional knowledge, massive negotiating power. There is horsepower at the disposal of a large firm that RIAs can’t match, not even close.”
But she said some are closing in, such as Hightower, Focus Financial and Dynasty, which are investing in technology, and offering trust services and consumer banking — things that have historically been the primary domain of wirehouses.
Scroll down through the cardshow to see wirehouse statistics and trends from the Cerulli report.
