The current government debt crisis in the United States adds another layer of fear for retail investors, a new report revealed.
Aite Group explored recent changes in market share, client assets and advisor headcount across wirehouses, fully disclosed broker/dealers, independent registered investment advisors and online brokerage firms at both firm and industry segment levels in its report, "New Realities in Wealth Management: Ready for the Sea Change and New Realities in Wealth Management: Has the Dust Settled?"
The wealth management industry in the United States had high hopes pinned on 2010, Aite said. While the year started out as expected, with a stock market recovery on track, the May 6, 2010 flash crash caused the Dow Jones Industrial Average to plunge by about 900 points, shaking the confidence of retail investors and depressing both trading volumes and revenue at wealth management firms through 2010, according to the report's authors.
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In the end, 2010 performance varied across the wealth management industry sub-segments; while wirehouse firm assets remained 8% below their 2007 high-water mark, other industry segments, including independent RIAs and online brokerages, fared much better, Aite noted.
Meanwhile, the current government debt crisis in the United States and several Western European economies continues to scare retail investors, according to Aite. These events have also contributed to the significant reduction in asset growth at many leading wealth management firms in the most recent quarter, the report noted.
"Financial advisors and online brokerage firms are banking on fee-based investment solutions to achieve more impressive growth in 2011 and beyond," said Sophie Schmitt, senior analyst with Aite and co-author of the report. "The verdict is not yet out on whether investors will embrace this investment management approach as many investors remain cautious in a volatile and uncertain economic environment."
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