A recent report from Cerulli Associates criticized the wirehouses for focusing on higher net worth clients. The result was that these firms were giving away the middle market (investors with $100,000 to $500,000 of assets to invest) to competitors. While their clients are richer they are also older and could be losing out on the next generation. That, in turn, has created a threat to their prospects for future growth, Boston-based Cerulli stated in the report.
Couple that with a still recovering U.S. economy and rivals in the independent/registered investment advisor space clamoring for their best talent, and the wirehouses have much to fear. But they continue to hold onto the bulk of client assets. And while that market share has dropped some, don't count these firms out. And don't count out their regional colleagues. "
After all, the employee-advisor channel is more than just Bank of America Merrill Lynch, Morgan Stanley Smith Barney, Wells Fargo and UBS. The so-called regional firms (some actually have a national reach) are benefiting from the missteps of their bigger brethren.
Overall, the employee-advisor channel is not a bad place to be. In fact, according to On Wall Street's 2012 survey of broker-dealers, 2011 turned out to be a pretty good year for these firms; perhaps surprisingly so, considering the worldwide concerns that generated so much market volatility last year. On average most broker-dealers reported year-over-year gains in total revenue.
What's more, the broker-dealers responding to the survey generally reported reduced or only slightly larger rep counts from 2010 to 2011. Broker-dealers are making an effort to operate more effectively. "We've made several changes to help us better serve clients," Jim Weddle, managing partner of Edward Jones, told On Wall Street. "Those changes also have boosted our performance."
Of the 16 firms whose total revenue from 2010 to 2011 were reported here, either from the companies themselves or their public filings, nine reported gains last year, including the six largest. (See chart) While four of the six smaller firms posted revenue declines in 2011, Wunderlich Securities reported the largest gains in the survey: more than 58%.
Among the larger firms, Raymond James & Associates had the largest percentage increase-more than 18%-bringing that firm to a near dead heat with RBC Wealth Management for seventh place on our list.
Commission Revenues: Ups and Downs
As might be expected in a year where investors were wary of stocks, commission-based results varied widely from firm to firm. Seven broker-dealers reported commission revenue from 2010 and 2011; three firms were up last year while four were down. Scott & Stringfellow posted a large gain here, up over 100% from year to year, while Southwest Securities' drop of more than 14% was the largest reported decline.
When asked how Scott & Stringfellow managed to post such a strong increase in commission revenue, Lynne Baldacci, first vice president and sales development manager, says: "We have experienced positive organic growth performance by continuing to focus on developing deeper and better relationships with our clients, while trying to extend the overall value we bring to the client experience."
Scott & Stringfellow recently named Bryan Cram president of its Private Client Group. Formerly the group's chief operating officer, Cram plans both internal and external expansion of the retail business. "We will leverage our relationship with our parent company, BB&T [Branch Banking and Trust]," Cram says.
While Richmond-based Scott & Stringfellow focuses on key markets in its Virginia-Carolinas main area, it's also setting its sights on other states. "We have some offices in Georgia and West Virginia," Cram says. "Now we're planning to enter Florida, Alabama, Kentucky, and Maryland as well." He adds that the parent company is deeply rooted in those states, which will help his firm expand in key markets there.
"BB&T has a growing wealth division," Cram points out, adding that Scott & Stringfellow plans to coordinate with BB&T in order to expand overall business with key clients who need sophisticated financial planning.
Fee Revenues: Surprisingly Stellar
In a flat year for investment performance, asset management fees might be expected to show lackluster results. However, all the broker-dealers responding to this question reported large gains in fee revenues, led by Alamo Capital's gain of over 78%, from a small base. Among the other firms, all posted gains of 15% to 30% in fee income from 2010 to 2011.
"Our 24% year-over-year increase in recurring revenue springs from several initiatives," Jerry Lombard, president of Janney Montgomery Scott's Private Client Group, says. "At Janney, we believe that pricing on a recurring revenue basis is a key component for financial advisors who want to scale and grow their practice. A continued emphasis on and education about this area at Janney has resulted in consistent 20% year-over-year gains in recurring revenue for several years running."