Despite ceding market share in both advisor affiliations and assets under management over the past decade, the wirehouse channel continues to dominate the industry in terms of advisor productivity, according to a new report from Cerulli.
With an average of $175 million in AUM per advisor, wirehouse firms have successfully maintained the highest productivity rates and have led all broker/dealer channels in productivity growth during the past one-, two-, and three-year periods, according to The Cerulli Report—U.S. Broker/Dealer Marketplace 2020: The Increasing Impact of Culture.
Wirehouse advisors are 124% more productive than the industry average of $77.9 million, according to Cerulli’s data. Furthermore, the channel experienced an 18.8% year-over-year increase in the productivity rate of its advisors, which grew from $147 million per advisor at year-end 2018 to $175 million per advisor at year-end 2019.
This productivity has resulted, at least in part, from the channel’s control over the largest share of high-net-worth investor assets, the report notes. Additionally, wirehouses have been changing their tactics by placing greater emphasis on moving their advisors upstream to engage with more affluent investors, to increase advisor retention and to encourage organic growth, while focusing less on paid advisor recruitment, Cerulli observes.
“Wirehouses have been making large investments in technology that can improve the efficiency with which advisors can operate their business and to improve interactions with clients,” says Michael Rose, associate director at Cerulli. “Technology platforms is one area where wirehouses are leveraging the advantage of their scale with positive effect.”
Yet as the RIA channel continues to mature and more third-party providers emerge to support RIAs in these areas, Cerulli expects the advantages for wirehouses will diminish over time. To remain competitive, wirehouse firms should identify the motivating factors for advisor defections and shore up areas of limited advisor satisfaction, the report suggests.
One possible area for improvement is compensation, where wirehouse advisors frequently voice their frustrations with “complicated and sporadically changing compensation grids,” Cerulli notes. Additionally, wirehouse advisors cite insufficient staffing support as being a challenge of operating at their firm at a far higher rate than national and regional B/D advisors.
“As wirehouses look to grow both the productivity and retention of their advisors, this is one potential area of investment that could pay significant dividends, by addressing a top pain point among their advisors while enabling them to focus less on the operational aspects of their practice and more on business development and relationship management,” Rose advises.
National and Regional B/Ds
Meanwhile, with $89 million in AUM per advisor, national and regional B/Ds remain in a distant second place among B/D channels in terms of advisor productivity. That said, national and regional B/Ds have experienced the fastest rate of productivity growth among B/D channels over the last five years.
For instance, the national and regional B/D channel grew its marketshare of financial advisor headcount at a five-year compound annual growth rate (CAGR) of 1.9% and AUM at a five-year CAGR of 8.3% as of year-end 2019—the fastest rate of growth in both categories across all B/D channels. Cerulli notes that these growth rates propelled the national and regional B/D channel’s marketshare of AUM to grow from 15.8% in 2014 to 17% in 2019 and its marketshare of advisor headcount to grow from 13.8% in 2014 to nearly 15% in 2019.
National and regional B/Ds have been successful in recruiting larger, more productive teams, particularly given the void in competition in advisor recruitment created by the wirehouse channel’s focus on organic growth, the report explains. What’s more, some national and regional B/Ds appear to be succeeding at appealing to branch network advisors who desire greater control over how they run their practices and in full ownership of their books of business.
“While the RIA channels provide advisors the ultimate in control in these and other matters, national and regional B/Ds can offer a happy medium for advisors defecting from a branch network firm, who may be more comfortable with the familiar employee-based affiliations these firms provide,” the report emphasizes.
Cerulli notes that firms in the national and regional channel are not without their challenges, and that moving forward, firms will need to invest wisely to navigate an evolving environment. “In particular, as the industry continues to consolidate, smaller national and regional B/Ds will be challenged to compete with firms with competitive advantages that derive from their scale, including superior advisor-facing technology, greater brand awareness and better economics,” the report states.
