Tough markets took toll on U.S. brokers, advisers in 2011
NEW YORK (Reuters) - The number of U.S. financial advisers fell for a third straight year in 2011, as choppy stock markets and thin yields eroded earnings and prompted more brokers to leave the business.
Across banks, brokerages, insurers and other investment firms, the ranks of U.S. financial advisers fell by about 7,000, or 2.3 percent, to 316,000 last year. This downward trend is expected to continue, with those numbers shrinking by 19,000 people over the next five years, or 1.2 percent a year, according to research firm Cerulli Associates' latest brokerage industry market share report.
"The continual decline in headcount is an indicator for the declining financial health of the industry," Tyler Cloherty, a senior analyst at Cerulli, told Reuters on Monday.
The investment advice business is losing people as older advisers retire or move to other lines of work. Meanwhile, assets under management across all investment advice channels grew only 0.2 percent to $11.6 trillion between 2007 and 2011.
"There isn't any new wealth creation or any new asset appreciation because the markets are really going nowhere," Cloherty said.
Cerulli's data showed that independent broker networks - a group whose advisers tend to have lower revenue production - were among the hardest hit among the different categories of investment firms.
Reuters video interview: www.reuters.com/ video/2012/08/06/more-brokers-throwing-in-the-towel?videoId=236887045&videoChannel=5 >
The ranks of self-employed broker-dealers fell 14 percent last year to about 80,000, reflecting the difficulty of operating an investment business when clients made fewer trades and the stock market ended flat for 2011.
For brokers who joined independent networks after falling short of production goals at the bigger firms, the next step was a new career, he said.
Brad Hintz, a veteran analyst of brokerages and investment banks at AllianceBernstein, said the challenge faced by brokerages big and small is that the vast majority of new advisers fail to build successful practices after several years.
"I'm not sure those are the odds you want to take with your career," Hintz said.
WINNERS IN A SHRINKING UNIVERSE
Some corners of the market experienced substantial growth in new clients and assets. Registered investment advisers (RIAs), who earn fees based on a client's portfolio assets, grew in numbers by 2.8 percent last year to nearly 29,000, Cerulli said.
They've increased their ranks by 2,700 people, or 6 percent a year, since 2007. This trend was fueled by "breakaway brokers" who jumped from big firms to start their own practices.
Assets managed and overseen by RIAs grew 14 percent last year to $1.4 trillion, outpacing the market and indicating more clients prefer to pay a fee for advice rather than commissions on trades.
The four biggest brokerages - Bank of America's (BAC.N) Merrill Lynch, Morgan Stanley (MS.N), UBS (UBSN.VX)(UBS.N) and Wells Fargo (WFC.N) - delivered mixed results. Their combined headcount rose 1.4 percent to 51,450 last year, as they halted the broker exodus that followed the 2008 financial crisis.
Even so, Cerulli data shows client assets across these big brokerages were little changed last year at $4.8 trillion, and down 3.3 percent since 2007. Cerulli's Cloherty says departing veterans are being replaced with new advisers.
Some of this movement, to be sure, reflects the big firms' efforts to cull lower-ranked performers to boost average production levels and increase efficiency.
AllianceBernstein's Hintz observed that the big lucrative accounts have tended to stay with the major brokerages.
Looking ahead, Cerulli forecasts that the top four firms will see their broker ranks shrink further, by 2.4 percent a year, to 45,580 by 2016.
Likewise, the big four brokerages may see their share of investor assets, which has dropped to 41.1 percent last year from nearly half in 2007, sink to 34 percent by 2014, according to Cerulli estimates.
Conversely, the ranks of independent RIAs are projected by Cerulli to rise nearly 5 percent a year through 2016 to 36,000. RIAs also are expected to remain the fastest growing channel in terms of client assets, having grown 14 percent to $1.4 trillion last year.
"Coming out of the recession, people are no longer as drawn to the big brand names as they were in the past," Cloherty said.
(Editing by Walden Siew and Jan Paschal)