Hold the Wire, Please

Asset managers might want to rethink their focus on the wirehouses, suggests a recent report by Cerulli Associates. Wirehouse firms have lost 8 percent asset market share over the last three years, and they’re expected to lose 6,800 FAs over the next five years, Cerulli found. Meanwhile, the independent channels are projected to pick up 3 percent in advisor headcount over the five-year period. And wirehouse defections are expected to pick up as retention packages loosen.

While the wirehouses are big and have deep pockets, Cerulli said other channels, such as RIAs and independent broker/dealers, might provide a greater return-on-investment for asset managers. These days, asset managers are dealing with fee compression on top of the increasing cost of servicing the wires, Cerulli said. Bing Waldert, head of Cerulli’s retail practices, said:

Firms should expect increased competition among advisors as manufacturers fight for distribution amid shrinking numbers. Asset managers struggling with placement on wirehouse product lists might reconsider whether the channel is the best recipient of their dollars and manpower.

The good news is, however, average advisor AUM for the wirehouse channel increased 10 percent in 2010, which could provide an opportunity for managers to focus on top producers and higher-net-worth clients. But more sophisticated investors require more sophisticated products, i.e. alternatives, and competition is fierce for shelf space.

Right now, asset managers have a choice. I think shelf space is just as limited on the IBD side, although the gatekeepers are not as strict and the process to get on the platform is not as rigorous. The RIA channel is rising, as we’ve written about time and again, and I think this is an untapped market for many managers. But the independent space is a different animal, and wholesalers are going to have to adapt if they want to make any impact on that market.

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