The wirehouse distribution channel continues to shrink in the high networth (HNW) space. In a new report Cerulli found that the current, combined HNW share for the four wirehouses -- Bank of America/Merrill Lynch, Morgan Stanley Smith Barney, Wells Fargo, and UBS -- stands at 45 percent.

That share is down from a high of 56 percent in 2007. Cerulli analysts expect this decline to continue, eventually reducing the wirehouses' HNW market share to 42 percent by 2014.

Private client groups -- including bank trust departments, investment banking firms' private client groups, and traditional retail broker-dealers -- and RIAs/multi-family offices are the beneficiaries of the decline of wirehouses.

RIAs grew their AUM at a rate of 18 percent in 2010, the largest increase by segment.

"While they are the smallest segment, RIAs/multi-family offices' positioning as fiduciary-based firms offering best-of-breed services resonates in an industry fraught with conflicts of interest. In addition, due to their size, these firms can position themselves as boutique, high-touch service providers," commented Rob Testa, lead analyst for Cerulli's HNW research.

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Company Press Release

March 2012, Boston. Cerulli's annual release of its HNW focused research reveals that of all the providers serving HNW investors, wirehouses are experiencing a loss in marketshare. By 2014, Cerulli analysts expect the HNW share of these firms to be 42%, down from the current 45%. The share of Bank of America/Merrill Lynch, Morgan Stanley Smith Barney, Wells Fargo, and UBS peaked at 56% in 2007.

Since then, their continuing marketshare loss is due to multiple factors. Following the financial crisis, wealthy investors expanded the number of firms with which they hold assets, including their advice providers. In addition, some of these investors pulled assets from the wirehouses as these firms flirted with insolvency during the market crisis. Finally, wirehouses have seen advisors depart for firms in other channels and take their clients with them.

Which channel has most benefited from the struggles at the wirehouses? Private client groups. Cerulli's private client group definition includes a variety of firms, such as bank trust departments, investment banking firms' private client groups, and traditional retail broker/dealers that work with HNW clients.

"Private client groups have been the recipients of many advisors and investors that fled the wirehouses. Firms that were perceived as safe, such as mid-size broker/dealers or bank trust departments, provided a safe haven for nervous investors and advisors that were ready to make a move. In turn, these firms have aggressively ramped up their hiring in the HNW space," commented Rob Testa, lead analyst for Cerulli's HNW research.

Cerulli's research also notes that RIAs/multi-family offices grew their AUM in 2010 at a rate of 18%, the fastest of any segment. In contrast, wirehouses grew their assets at a rate of just 2% over the same time period.

"While they are the smallest segment, RIAs/multi-family offices' positioning as fiduciary-based firms offering best-of-breed services resonates in an industry fraught with conflicts of interest. In addition, due to their size, these firms can position themselves as boutique, high-touch service providers," concludes Testa.

 

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