The number of employee advisors (i.e., those employed by wirehouses, banks, insurance companies) as a share of the overall financial advisory marketplace shrank from 63% of the workforce in 2004 to 59% at year-end 2010, says Cerulli, a Boston-based consultancy. Meanwhile, the market share for independent advisors (both at broker-dealers and RIAs) rose from 37% to 41% during that period.
"We are still projecting this move toward independent advisory firms to continue with 50- to 150-basis point shifts in market share a year," says Bing Waldert, a Cerulli director.
Similar trends are expected when it comes to assets under management. The percentage of industry assets held by employee advisors dipped from 70% in 2007 to nearly 66% last year. During that same period, AUM controlled by independent advisors rose from nearly 30% to more than 34%.
When it comes to head count, the industry's employment picture as a whole is sloping downward. Cerulli's research found that the number of financial advisors serving retail clients across all channels fell by almost 14,000 workers in 2010. That left about 320,000 total advisors at the end of last year, and Cerulli's model projects a decrease of another 8,000 advisors by 2015.
The industry's demographics play a role, as more advisors reach retirement age and not enough new blood takes their place. Meanwhile, the financial crisis of '08-'09 and its lingering aftermath have forced less robust advisory practices to close shop.
The gist of Cerulli's analysis is that employer-based advisors are taking the biggest hit, especially at wirehouses where Cerulli expects the Big Four national brokerages-Morgan Stanley Smith Barney, Bank of America's Merrill Lynch, Wells Fargo Advisors and UBS Wealth Management Americas-to keep losing financial advisors who want higher payouts and greater control of their practices within the independent broker or RIA models.
Wirehouses will have to up the ante to retain their remaining advisors and entice new ones to join the fold, Waldert says. However, he adds that wirehouse defections haven't just been about making a dash for the cash. Rather, some advisors jump ship for the chance to own and operate their own business.
"It's the opportunity to build an enterprise of intrinsic value, and to start to have more freedom and flexibility to how you customize your service offering to clients," Waldert says.
But not all independents are feeling the love. Head count at independent broker-dealers has dropped almost 1% since 2007, mostly at smaller firms. Meanwhile, some larger outfits such as LPL Financial have thrived, partly by grabbing advisors from smaller independent broker-dealers.
The independent RIA channel has been an industry bright spot, with estimated 7% annual growth since 2007. RIAs are getting young talent who are attracted to the consultative side of the advisory business and are less inclined to take the traditional commission-based sales path embodied by the wirehouses.