What's Behind the Wirehouse Headcount Drop?

The number of advisors with the four wirehouse firms slipped about 2% in the past year to 52,987, according to their latest reports. Meanwhile, total assets rose about 15% to $8.3 trillion in 2019, as the major stock indexes improved 23% or more.

Morgan Stanley's wealth unit is now down to about 15,500 from roughly 15,700 a year earlier, while UBS Americas is close to 6,550 vs. 6,850 in 2018.

Wells Fargo's headcount stands at some 13,500 vs. nearly 14,000 in the prior year. Merrill's advisor group (excluding those with Bank of America's Private Bank) decreased by 60 to 17,458 over the past year, including the Merrill Edge reps.

The headcount figure for the four wirehouses has "been diminishing every year, and going back to the financial crisis, it's now dramatically lower," said Danny Sarch, head of Leitner Sarch Consultants.

"The trend is very clear," Sarch added, "but it's so hard to make a generalized statement [about this] given the lack of clarity there is around these figures."

These firms and others can include anyone with a Series 7 license in their data, he points out, and then exclude these individuals in the overall advisor production figures.

"When it comes to the advisor attrition being net up or net down or the number of advisors recruited in or retired out, it is not very clear," Sarch said. "This lack of transparency makes me very suspicious."

The headcount for UBS, for instance, includes advisors in Latin America.

(Merrill recently said its advisor attrition was about 4% in 2019.)

Industry Trends

The declining wirehouse headcounts "are partially due to the industry's aging and shrinking sales force," said Mark Elzweig of the recruiting firm Mark Elzweig Co., who adds that Cerulli Associates' data shows about a third of advisors could retire over the next decade.

In addition, the wirehouse headcount drop is a result of the exit of both UBS and Morgan Stanley from the Broker Recruiting Protocol, according to Elzweig, "and their new focus on selective upgrades to their sales force rather than broad-based new hires."

But the latest numbers "may cause that [approach] to change," he says.

'Failing Model'?

The falling wirehouse headcount "is a reflection of a failing business model and shows these firms are either unable or unwilling to adjust to the marketplace," according to Sarch.

"Every year, it looks like they are getting more rigid in their policies and procedures rather than more flexible," he said.

"They build bigger and bigger walls because of the drive for short-term profits," Sarch said. "But they train advisors to focus on long-term trends and not the short term when it comes to managing client assets — what irony."

Meanwhile, "Cultural changes and bureaucracy are prompting more wirehouse advisors to move to regional and independent firms," Elzweig said.

"Given that firms have an aging sales force, without an aggressive recruiting program, their headcount will shrink," he said. "Will the increased productivity of those who remain make up for this? We will see."