Asset, revenue levels tank at brokerage, advisory firms

Financial advisers are bracing as asset levels at brokerage and advisory firms are off by about 30% from a year ago, and revenue is expected to be down accordingly.

At Raymond James Associates Inc. of St. Petersburg, Fla., which reports monthly operating data, commission and fee revenue was off about 25% in January and February, compared to the same months last year.

For 2008, Merrill Lynch & Co. Inc. of New York saw client assets drop 30%, and Citigroup Inc. of New York lost 28%. At The Charles Schwab Corp. of San Francisco, the decline was 21%.

Other brokerage and advisory firms have reported similar drop-offs.

Per-broker production at Delta Equity Services Corp. of Bolton, Mass., is running about 30% less than last year, said Ray Grenier, chief executive. The firm has about 100 brokers.

“The typical rep at our firm is off 20% to 40% depending on what their [product mix] is,” said Don Bizub, chief executive at Western International Securities Inc. in Pasadena, Calif., which has about 300 reps.

“I’m down about 30%” in client billings, said Michael Dubis, owner of an eponymous firm in Madison, Wis., that charges hard-dollar retainer fees for planning services.

Meanwhile, some wirehouse brokers can quietly point to production runs of stressed colleagues who are off more than 50% from last year.

A market recovery could, of course, change the current dim outlook.

But on the other hand, nervous clients could pull back further in the face of continued losses, making things even worse this year, industry observers said.

Retail investors tend to respond to the markets with a five- to eight-month lag, so the response to the market drop last fall might not have been fully realized yet, said Brad Hintz, an analyst at Sanford C. Bernstein & Co. LLC in New York.

“If the investor throws in the towel and stops trading, [the business will] become worse as we get close to summer,” he said.

Fee-based business has not helped buffer the downturn, some observers said.

Assets in subadvisory separately managed accounts, where brokerage firms contract directly with money managers, dropped 42% last year, according to Cerulli Associates Inc. of Boston.

These programs are second only to mutual fund wrap accounts in terms of assets. Fund wrap assets fell 28% last year.

Clients who wanted to move to cash may have been forced to end their subadvisory SMA program, a first-quarter Cerulli Associates report said. These programs tend to be less flexible in allowing strategic-allocation shifts.

“A lot of clients want to unravel their fee-based arrangements be-cause they feel they’re paying to lose money,” Mr. Grenier said.

To be sure, some advisers and firms have been gaining clients and are holding their own.

“My business grew 20% [in 2008] and this year another 20%,” said Brian Carruthers, founder of an eponymous Laguna Beach, Calif.-based adviser with $44 million under management.

Mr. Carruthers, who uses an active tactical-allocation approach, largely went to cash last year, and his clients have been spreading the word, he said.

The fixed-income business has been strong, according to brokers. But bond business generally doesn’t pay as well as other products, and commission-based brokers get virtually nothing from holding cash.

Advisers who use retainer fees are better able to deal with the downturn than those who depend on assets under management, said Diahann Lassus, chairwoman of the National Association of Personal Financial Advisors of Arlington Heights, Ill., a group of fee-only planners.

She is also president of Lassus Wherley & Associates PC of New Providence, N.J., which manages $250 million.

“But it’s all or nothing” for retainer clients, Mr. Dubis said. If they leave, it’s a 100% loss, he said, compared with the continued revenue from asset-based fees.

Mr. Dubis said a few of his retainer clients were forced to leave recently due to their personal financial situation.

E-mail Dan Jamieson at [email protected].