The Great Broker Breakout

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Finally, the prominent names like Merrill Lynch (MER) and Morgan Stanley (MS) are no longer selling points and have become a detriment in the eyes of clients. "It's baggage to have those brands on business cards," says Welsh, who helps advisers make the transition.

More than anything, though, customers are driving the push. "People are tired of auction-rate securities," Welsh says. "They're tired of Wall Street conflicts ending up in their portfolios." Instead, many are demanding more from their advisers. Investors want advisers to act in the client's best interest, not push products that their firm would profit from. And they want financial planning services that include products from other firms. "One thing they demanded was access to everything on the shelf, not just what's at Merrill," says John Krambeer, an adviser with Camden Capital Management in El Segundo, Calif., who left Merrill Lynch in 2004 after 16 years at the firm.

Big Firms Are Forced to Adjust

The Aite study predicted that if a mass exodus occurred, the top five firms—Merrill Lynch, Citi Smith Barney, Wachovia Securities (WB), Morgan Stanley, and UBS (UBS)—could lose $2 trillion in assets and $7.5 billion in revenues. The brokerages, of course, aren't taking the challenge lightly. Some brokers have responded by creating independent broker dealers. Others are shifting their business model away from sales to a more overarching approach and offer more services, including estate and other financial planning.

However, to compete, they will have to get nimbler and more flexible. And if they succeed, that could spell the end of a Wall Street staple: the stock broker. Says Ruediger Adolf, chief executive officer of Focus Financial Partners, the largest independent wealth management partnership in the U.S: "I'm convinced that we'll ultimately conclude this was the beginning of the end."

Levisohn is a staff editor at BusinessWeek covering finance and personal finance.