Exactly two years ago, Mark Hurley released his controversial report predicting that giant institutional investors would enter the financial advisory business and turn up competitive heat, fuel consolidation and marginalize many small, independent firms. The prediction about the wave of big new players entering the advice game proved very prescient.

But the argument that small, independent shops would be squeezed and forced to consolidate has yet to pan out. Instead, some high-profile efforts by financial giants to penetrate the business have already flopped. JP Morgan, perhaps the most prestigious name in American banking, jettisoned its online wealth-management service, and Morgan itself was forced to merge with Chase about one year after the service was announced.

Nor have small firms rushed to merge. Concerns like Assante of Canada and The Evensky Group have done few, if any deals, with advisors. Jessica Bibliowicz's National Financial Partners has bought just under 100 firms, though it remains to be seen whether these small businesses can be organized to leverage their combined size.

Some advisors unnerved by Hurley's report are deriving a momentary degree of satisfaction from the fumbles of Wall Street big boys and the vertiginous collapse of online trading. But they aren't laughing at the recent decisions of Charles Schwab & Co. and Fidelity Investments to ramp up their own advisory services units.

Success in the advice business hardly is guaranteed for these two direct marketers. But the reason they are investing in this business is that they like its prospects. The future of advice offers a stark contrast to the gloomy outlook for online trading.

Although everyone is experiencing a rough year, independent advisors' business has held up relatively well. Revenues at many independent brokerages, a good proxy for commission-based planners, are down 12% to 25% in the first eight months of 2001. And many fee-based financial advisors are enjoying flat revenues, a remarkable result when one realizes that some wirehouses are off 35% or more, and online brokerages are down 60% to 70%.

All of this sounds good, and unfortunately, it may be too good to last. One key argument of Hurley, merger consultant Mark Tibergien and others is that the thin margins and tiny capital bases of independent firms could leave them vulnerable to an industrywide downturn. Quite soon, the validity of this argument should be established or debunked by actual results. But so far, the fee-based business model is looking extremely resilient.

Moreover, the wave of consolidation that was predicted to engulf independent practitioners hasn't materialized. A study of financial advisors conducted several years ago by American Express reported that 30% were looking to retire by 2005. It's not clear how realistic the advisors in the survey were about their own retirements, but they no doubt were better-equipped to gauge their ability to retire than the rest of the population.

But some facts just don't jive with others. I was stunned two months ago when David Goad, president of FPtransitions, an online exchange for advisory practices, told me that his Web site has 25 potential buyers for every seller.

Part of the problem clearly is that the terms being offered by many buyers don't make economic sense to the sellers. Often, a buyer can recoup the cost of purchasing a practice within one or two years and greatly increase the firm's income, sometimes by 50% or 100%, going forward.

There's an old saying that in every transaction there's a sucker, and if you can't figure out who it is, it's probably you. Clearly, potential sellers are figuring out that they are the suckers, and they're not selling. As a few have told me, they are much better off sending marginal or unwanted clients somewhere else, scaling back their workloads and doing business only with those clients who are profitable and personally satisfying to service.

Until potential buyers come up with a better value proposition, the wave of consolidation nearly everyone is predicting won't happen.