The attempts by wirehouses to boost their profits appear to be backfiring on them in two ways, according to a new Cerulli Associates' report.
By focusing on higher net worth clients and effectively conceding the middle market (investors with $100,000 to $500,000 of assets to invest) to competitors, the big four have lost many younger clients, writes research firm Cerulli Associates in its new “State of the Wirehouses” issue.
That means that wirehouses have boosted their average client age and created a threat to their own prospects for future growth, Boston-based Cerulli says in the report. And the wirehouses ignore these smaller clients at their peril, the report concludes. Households in the 35 to 55 age range control $10.2 trillion of investable assets, according to the report. Plus, many analysts have predicted Generation Y, the so-called “Echo Boomers,” will inherit much of the wealth of their baby boomer parents.
The wirehouses’ second faux pas, as Cerulli sees it, is in vexing asset managers with sharply higher revenue sharing costs. The report notes that Morgan Stanley Smith Barney has raised the minimum cost for asset managers to be on its platform to $250,000 from $50,000 in 2009. “Needless to say, this has many asset managers questioning whether they want to pay the cost,” the report states.
The report also focuses on dissatisfaction among the high-net-worth clients the wirehouses have sought to keep.
Cerulli writes that the wirehouses’ grasp on the coveted high-net-worth market is slipping, to an estimated 45% at the end of last year from a peak of 56% in 2008. The report contends the trend of these clients picking up more advisor relationships in 2008 to 2009 resulted from a mix of “blaming the incumbent” for choppy market conditions and wanting to diversify in case one of the advisor firms failed.
“Consumer distrust and dissatisfaction with these firms continues to linger,” the report states.
What’s worse, Cerulli adds, customers who named the wirehouses as their primary provider were also the least likely to be satisfied with their provider; with some 58% of investors saying they were satisfied with their wirehouse provider, compared with 74% who said they were satisfied with their other full service broker-dealer. “In general, satisfaction rises along with wealth, meaning that dissatisfaction with the wirehouses is that much more troubling,” the report states.
Elizabeth Wine writes for On Wall Street.