Financial research firm Cerulli Associates issued a “fairly dire” projection for the share of assets wirehouse firms will have come 2013, even as those same firms are expected to remain the largest distribution channel.

Cerulli’s report shows that while the financial advisory industry has continued to grow, wirehouse assets have declined. In 2010, the overall industry grew to $11.2 trillion from less than $11 trillion in 2007. During that same time period, assets at the wirehouse firms dropped from $5.5 trillion to $4.8 trillion.

For 2013, Cerulli projects that that decline in assets held by the wirehouses will continue, from 43% in 2010 to 35% in 2013. At the same time, the wirehouse firms will still rank as the largest distribution channel in 2013, Cerulli projects.

The caveat to the decline in assets seen by the wirehouse firms – including Bank of America Merrill Lynch, Morgan Stanley Smith Barney, UBS and Wells Fargo Advisors – may have come from deliberate strategies to reduce middle management and lower producing advisors, Cerulli said.

Morgan Stanley Smith Barney is seeking a 20% profit margin in wealth management, and has reduced middle management layers, Cerulli noted in its report. Bank of America Merrill Lynch has also reduced middle management.

If the wirehouses decide to make up for the assets they have lost, they may face restricted options, according to Cerulli. That is because independent and regional firm advisors rarely make a switch to a wirehouse firm. The wirehouse firms also do not have a successful track record of adding advisors through mass hires.

To solve their attrition issues, Cerulli said, wirehouses need to make sure cost cutting does not prompt existing advisors to leave, and find new sources for new advisors.

Cerulli’s report suggests the wirehouses focus on growing successful existing teams by adding junior advisors to them.

“The most logical path to the future growth of wirehouses is through their largest advisor teams,” Cerullli Director Bing Waldert said in a statement. “Not directly via organic growth, but rather by supplementing these teams with junior advisors in order to free the principal advisors to continue their focus on business development.”

Lorie Konish writes for On Wall Street.