July 2014, BOSTON. According to new research from global analytics firm Cerulli Associates, wirehouses face unique challenges in adding more investor relationships.
"While the wirehouses are not yet winning new clients, they are for the first time in recent memory retaining share of assets, including those of high-net-worth investors," comments Kenton Shirk, associate director at Cerulli. "Wirehouse firms have reshaped their business around serving the industry's largest and most productive advisors. These firms have positioned themselves as delivering the scope and scale of a global financial institution to affluent investors."
The third quarter issue of The Cerulli Edge - Advisor Edition takes a close look at the wirehouse channel, examining advisor retention and investor relationships.
"Trust is the central element of advisory relationships, and investor decisions depend on which provider they trust most to provide them with quality service at a fair price," Shirk states. "Our research has consistently found that investors place far greater trust in the individual financial advisors with whom they work than with the firms that employ those advisors."
Wirehouse firms have primarily relied upon their advisors to prospect for new clients. Considering the costs of recruiting and retaining experienced advisors, these firms must consider additional methods for addressing new clients.
"We believe the best options for firms in the wirehouse channel are selectively recruiting existing advisory practices and capitalizing on their scale to create centralized units that embrace technology," Shirk explains. "Advisors can rely on this technology for custom advice."
"It appears that the wirehouses' strategy of focusing on the largest advisors has begun to bear fruit as their marketshare stabilizes," Shirk adds. "The four wirehouses already boast the industry's most significant assets under management per advisor."
Cerulli notes that asset managers are left with a classic business and distribution conundrum as to whether they should invest resources in the eroding but dominant marketshare of the wirehouses. This decision is made more challenging by the revenue sharing that the largest wirehouses demand.
"Wirehouses offer access to investment-savvy investors and a wealthy clientele," Shirk continues. "For an asset manager of scale, their distribution strategy must account for these firms."