Wirehouses Are Simultaneously Shrinking and Growing
Authored by: Jeff Nash, Founder & CEO, Bridgemark Strategies
The wirehouse model is in the midst of a long-term structural shift. A perfect storm of declining advisor headcount, rising affluence among individuals and families and increasing demand for advice has led to fewer advisors managing more assets.
That’s good news for their big-bank bosses: with assets per advisor increasing significantly; these firms are seeing higher per-person productivity and enjoying the lower costs associated with fewer advisors (e.g., fewer support staff, less office space, reduced reporting lines/managerial levels). Is this profitability-boosting scenario sustainable? And even if it is, are advisors willing (and able) to operate in such an ecosystem?
The dynamics that created the current environment are not anomalies: demographic trends and the implications of the Great Wealth Transfer will continue for many years to come. The operational shifts that came to the fore in our post-COVID world have proven resilient. With more advisors working remotely, many question the value of physical branch offices and frown upon paying for an office infrastructure that no longer serves them.
The Tipping Point
Wirehouse advisor headcount is steadily declining, with some estimates putting the fall off at between one and five percent a year. With client assets continuing to rise, wirehouses are seeing higher profit margins – some as high as 30%. Good news for these enterprises. Perhaps not so much for their advisors.
The wirehouse advisor population consists of two main groups. First are those who are more embedded in their current situation, either because an existing team structure or a reliance on proprietary products (e.g., alternatives, lending, banking) makes a transition more difficult. Then there are those who have more reason than ever to look elsewhere for professional satisfaction and success and are less reliant on their current firm’s infrastructure and, therefore, more mobile.
Given projected conditions over the coming decade, this divide will not be bridged. Instead, it will be exacerbated.
The Compensation And Productivity Disconnect Is Driving Attrition
While wirehouse advisors are more productive than in the past and manage larger books of business, their compensation has not increased proportionately and is often lower than that of independent models. In many instances where higher payouts are in play (typically through teaming structures), any actual increases in compensation are offset by higher expenses. So, when all is said and done, wirehouse advisors as a group are generating more revenue, but not necessarily seeing that reflected in their income.
Economics and opportunity are pushing wirehouse advisors out the door and into the independent space – the attrition numbers don’t lie. Advisors who do not think their value is recognized in their current situation and also believe the independent channel will recognize it today and empower them to create even more value in the future have spurred what has become a significant breakaway movement, resulting in unprecedented growth in RIA and alternative platforms.
The Real Future Of The Wirehouse Model
Wirehouses are well aware they have a retention problem and are using strategies such as team-based models and the integration of banking and lending products to elevate platform dependency and help stem the tide of departures.
Despite such tactics, it’s important to remember that the evolution of the wirehouse model will continue to be driven by profitability per advisor and NOT advisor success. Captive advisors who choose to remain can expect continued pressure on payouts, services and/or structure; they will, however, retain the potential to benefit from asset consolidation. Less embedded advisors will continue to contemplate and may eventually actualize a move to independence. No matter which camp an advisor falls into, they must approach their future as if it were a game of chess: understand their current position, take time to envision their ultimate goals and strategically approach the options at their disposal to arrive at them.
Full article available here: https://www.fa-mag.com/news/wirehouses-are-simultaneously-shrinking-and-growing-86827.html?section=40
