When Morgan Stanley announced a 10% grid increase in late 2024, industry observers praised the decision as evidence that wirehouses had finally recognized the compensation gap threatening their advisor base. The celebration missed the point. Wirehouses now compete primarily on compensation because their structural model has become a strategic liability.
As I note in my recent report, The Edward Jones Evolution: How a Regional Firm Came to Threaten Wirehouse Dominance, compensation adjustments cannot solve retention problems rooted in organizational design. Advisors leaving Morgan Stanley, Merrill Lynch, and Wells Fargo for LPL Financial, Raymond James, or Edward Jones cite compensation as one factor among several. They mention technology gaps, product mandates, operational constraints, and the absence of equity ownership. Raising the grid addresses the symptom while ignoring the underlying condition: fundamentally different business models that align firm success with advisor autonomy rather than corporate control.
Edward Jones continues gaining market share while brands with superior capital markets access and century-old reputations experience persistent advisor attrition. The answer has nothing to do with technology sophistication or product breadth. It has everything to do with whether the firm exists to serve advisors or control them.
Structural Disadvantages of the Employment Model
Wirehouses and bank wealth management divisions built their businesses around employment relationships. Advisors receive salaries, benefits, office space, and infrastructure support in exchange for following corporate direction on technology usage, product distribution, and client service protocols. For decades, proprietary research, trading capabilities, and banking relationships required capital investment, justifying centralized control.
The employment model creates three structural disadvantages. First, it generates high fixed costs that don’t adjust with revenue fluctuations. When a billion-dollar team departs, salaries, benefits, real estate leases, and corporate overhead remain while revenue disappears. The firm must either absorb margin compression or raise productivity requirements for remaining advisors, triggering additional departures in a self-reinforcing attrition cycle.
Second, it lacks equity alignment. Top wirehouse advisors earn substantial compensation but build no ownership stake despite creating significant book value. The equity value transfers entirely to the firm at retirement or when better opportunities arise. This creates a rational economic incentive to leave for platforms that offer equity participation.
Third, it prioritizes product distribution over advisor enablement. When corporate leadership launches a structured product or alternative investment fund, employment structures push advisors to allocate client capital to those offerings regardless of optimal fit. Technology investments favor enterprise risk management and product placement tracking rather than features that reduce advisor workload or enhance client outcomes. Over time, advisors recognize that infrastructure serves corporate priorities rather than practice success.
These disadvantages reinforce each other. Top producers leave for better economics and greater autonomy. Their departures worsen the cost structure for those who remain. The firm responds by tightening product mandates and raising minimum production requirements. More advisors explore alternatives. The cycle accelerates until the firm either transforms its model or retreats upmarket to the ultra-high-net-worth segment, where capital markets capabilities still justify premium economics.
The Platform Solution
Firms organized around advisor enablement operate from a fundamentally different premise. They view advisors as customers who purchase infrastructure services rather than employees who receive corporate direction. The firm provides technology, compliance support, operations, custody, and corporate administration. Advisors pay for these services through fees but maintain operational autonomy over client relationships, investment decisions, and practice management.
Edward Jones provides the clearest example of how the advisor-as-customer model generates competitive advantage. The firm manages US$825 billion across more than 20,000 advisors while maintaining operating margins above 11%. Edward Jones advisors operate as franchisees, building equity value as their practices grow. They maintain decision rights over client service and practice operations within the institutional infrastructure. Most importantly, they benefit from technology investments focused exclusively on advisor productivity rather than competing with corporate priorities around product distribution or risk management.
This structure simultaneously solves all three disadvantages of the employment model. Variable costs replace fixed overhead because fees scale with advisor production rather than constituting pre-committed salary obligations. Equity participation aligns retention incentives because advisors accumulate ownership value that they would forfeit by leaving. Lastly, technology investments serve advisor enablement rather than corporate control because firms treating advisors as customers succeed only when advisors voluntarily choose their capabilities over external alternatives.
The difference becomes particularly visible in technology procurement. When LPL Financial evaluates portfolio management software, the primary question is whether the tool reduces advisor clicks and automates workflow. This inverts the typical wirehouse procurement process, where technology must first satisfy corporate compliance requirements and facilitate product placement before addressing advisor productivity. Firms treating advisors as customers optimize for advisor satisfaction because dissatisfied advisors can leave for competitors. Employment models optimize for corporate control because employed advisors face higher switching costs.
Why Compensation Alone Cannot Bridge the Gap
Morgan Stanley’s grid increase, while financially meaningful for individual advisors, cannot solve the underlying retention challenge. A wirehouse advisor earning an additional 10% on production still accumulates no equity ownership, still operates under product mandates that prioritize corporate distribution goals, and still uses technology optimized for enterprise risk management rather than practice productivity. The advisor who leaves for a competitor accepts slightly lower short-term compensation in exchange for equity participation, operational autonomy, and infrastructure designed for advisor success.
The competitive threat to wirehouses comes not from independent advisors operating entirely outside traditional structures, but from firms like Edward Jones, LPL, and Raymond James proving that the broker-dealer model thrives when organized around advisor enablement rather than corporate control. Technological democratization has eliminated the justification for employment model constraints. Portfolio management systems, financial planning software, alternative investment platforms, and trust administration tools that once required vertical integration now operate as services available to any advisor. When advisors can access institutional infrastructure without employment constraints, the value proposition of wirehouses collapses to brand and inertia, neither of which overcomes the structural disadvantages of centralized control.
The decision facing traditional wealth management firms is binary: reorganize around advisor autonomy or manage a declining asset base. Raising compensation grids and upgrading technology systems address symptoms. The real choice is whether to grant advisors technology selection rights, design compensation around equity accumulation, and measure success by advisor retention rather than product distribution. These changes require surrendering corporate control, the very mechanism that defined wirehouse competitive advantage for decades.
For the past 50 years, advisors needed firms more than firms needed individual advisors. That relationship has permanently reversed. The firms that recognize this reality first will dominate the next era of wealth management. Those that continue to optimize employment structures will discover that brand heritage cannot overcome organizational obsolescence.
Interested in learning more? Contact me at [email protected].
