Are Wall Street Wirehouses ‘Killing the Goose that Laid the Golden Egg?’


The big four Wall Street wirehouses have lost market share since the financial crisis in part because of their role in the crisis and “customer distrust,” according to Bing Waldert, a director of Cerulli Associates Inc. (See “Wirehouse market share has shriveled since crisis,” InvestmentNews). Merrill Lynch Wealth Management, Morgan Stanley Smith Barney, UBS AG and Wells Fargo & Co. have also lost market share by terminating lower producing brokers. While the wiehouses have tried to focus on high net worth clients, their share of that lucrative market has declined as well.

Total assets under management at wirehouses fell from $5.5 trillion to $4.8 trillion, a drop from 50 percent to 43 percent of market share. Cerulli estimates that wirehouse market share could fall another 8 percent by the end of 2013. In addition, the wirehouses’ share of clients with over $5 million dropped from 56 percent in 2008 to 45 percent as of the end of 2010.

The three major factors in the wirehouses’ loss of market share, according to Cerulli, are: (1) representatives leaving for independent registered investment advisors and broker-dealers; (2) clients leaving the wirehouse advisers who stay put; and (3) weak investment performance.

“It’s possible that customer distrust in the wirehouse channel made them more likely to stay on the sidelines, and therefore they didn’t participate in the recovery as much as others have,” Waldert was quoted as saying.

“Breakaway brokers” reaching the end of retention agreements are expected to further accelerate the trend by jumping to firms like Schwab, TD Ameritrade and Pershing, which provide custodial services (See “More wirehouse brokers expected to bolt this year,” InvestmentNews). Last year, Schwab received 166 teams of breakaway brokers and TD Ameritrade received 348 through 3Q11.

Breakaway brokers are said to be frustrated at the bureaucracy and managements at their firm. While compliance has long been relegated to third-world status at many brokerage firms, some surviving firms claim they are bolstering their compliance departments, and some brokers who are frustrated with a new compliance yoke may also jump ship. “The hardening-up on compliance ? that’s one factor” increasing the stream of breakaway brokers, according to the article.

Page Perry is an Atlanta-based law firm with over 170 years collective experience protecting investor rights and fighting Wall Street greed.