Analysis: Big brokers seen losing more ground to indies

NEW YORK (Reuters) - After seeing thousands of customers and advisers jump to independent firms in the wake of the financial crisis, the biggest U.S. brokerages are expected to continue losing market share for several years.

Morgan Stanley Smith Barney, Bank of America Corp’s Merrill Lynch, Wells Fargo and UBS -- the wirehouses -- will see their share of U.S. client assets shrink from 41 percent last year to one-third by 2012, Cerulli Associates said in its latest report.

Over the same four-year period, independent broker-dealers and regional firms such as Stifel Financial are expected to increase their shares to 16 percent each. Registered investment advisers (RIAs), meanwhile, will gain more than 1 percent to command 12 percent of assets.

These moves are the latest evidence of a historical shift away from the big-firm, full-service, coast-to-coast brokers in favor of smaller firms, online brokers and independent advisers.

“Wirehouses have been losing share for a while. None of them have increased their numbers of advisers in a decade, while the independents have been growing,” said Charles “Chip” Roame, head of wealth management consulting firm Tiburon Strategic Advisors.

Today, he added, independent-broker network LPL Financial has nearly as many advisers as Merrill Lynch and Wells Fargo Advisers, while the assets controlled by Charles Schwab’s network of RIAs is on par with UBS.

The near collapse of many of the market’s biggest banks triggered record movement by financial advisers and customers in 2009, when nearly 9,000 brokers jumped to new jobs. Most settled in with rival wirehouses, but about 1,500 “breakaway brokers” formed or joined independent practices.

Cerulli projects that financial adviser ranks in the Big 4 firms, after a period of expansion this year, will decline by about 1,300 to 48,900 by the end of 2014. That's a five-year decline of about 0.5 percent. (For a graph showing brokerage market share trends, click: )

Over that same period, RIAs will steadily increase their ranks by 12 percent to 35,000, while independent broker-dealers such as LPL Financial are expected to increase 1 percent to 102,615 advisers,

Following the advisers are the customers and their money.

Between 2007 and last year, client assets at the Big 4 firms dropped 12 percent to $4.2 trillion -- still dominant in an industry with about $10.4 trillion in assets --- while RIAs, independent brokers and regional firms saw slight gains.

Tiburon’s Roame estimates something like $800 billion of client assets will move to new homes this year, with a third of those assets shifting to independents.

Wall Street has largely recovered from the financial crisis and the pace of broker movement has slowed -- from 15 percent of brokers switching employers to one in 10, Cerulli said -- but the longer-term trend is still intact.

“The breakaway broker movement may not be the tsunami it was, but it still exists,” said Cerulli analyst Scott Smith. “There are more advisers moving to the independent space. There is still some velocity.”

Reporting by Joseph A. Giannone, editing by Matthew Lewis