Wirehouses are losing their grasp on the much-sought-after, high-net worth-market, with their market share expected to slip from to 42% in 2014, from 45% in 2010, according to new data.
Cerulli Associates’ annual high-net-worth research predicts the biggest firms, which includes including Bank of America Merrill Lynch, Morgan Stanley Smith Barney, Wells Fargo and UBS, will continue to see their slice of the pie erode, down from a peak of 56% in 2007.
The report notes that private client groups passed wirehouses as the largest provider of services to high-net-worth clients in 2010, controlling 47%, or nearly $2.2 trillion by year-end. Wirehouses controlled 45%, or $2.1 trillion at that time. Data for 2011 is not yet in, but Cerulli expects wirehouse assets will be at a similar level. More important, Cerulli predicts that private client groups will stay on their pace, accumulating $2.8 trillion in high-net-worth assets by 2014, which the Cerulli projects will represent 49% of the market by that year.
The wirehouse firms either declined comment or did not respond to requests for comment.
However, the Cerulli report attributes the wirehouses’ eroding market share to several factors, including high-net-worth investors (defined as those with $5 million of investable assets) spreading their wealth among several advisors—a trend Cerulli has previously identified as “cheating on your advisor.”
It didn’t help that many well-heeled investors withdrew some of their assets from the wirehouses altogether during the market crisis of 2008 when many firms on Wall Street looked shaky. Rounding out the picture has been the departure of wirehouse advisors to other channels, including going independent. Often, those advisors took their clients with them.
The report pegs private client groups as the big beneficiaries of the trend. “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,” Rob Testa, lead analyst for Cerulli’s HNW research, wrote.
The report also highlights the robust growth of independent advisors, with the registered investment advisor/multi-family office segment of the market growing its assets under management 18% in 2010. That was the fastest of any group. By comparison, wirehouses grew their assets at a rate of 2% in the same period.
RIA firms are growing from a much smaller base. Their assets under management were just $178 billion in 2005. That figure doubled to $356 billion in 2010.
But Testa said in an interview that they have a lot of factors working in their favor. He believes that RIA firms have the ability to position themselves as fiduciaries is a key to their success, saying it “resonates in an industry fraught with conflicts of interest.”
What’s more, they can play the “small is beautiful” card, painting themselves as boutique service providers. “The family office model is one of the highest-touch services a family can find,” he said.
Elizabeth Wine writes for On Wall Street.