In another sign of consolidation in the retail brokerage industry, Morgan Stanley and Citibank’s Smith Barney yesterday announced their intention to merge.  The new company will be a retail juggernaut with over 20,000 brokers, 1,000 locations, and $1.7T in client assets.  As I mentioned yesterday, the strategy behind these deals is to realize operational efficiencies, decrease the marketing spend, and acquire as many client assets as possible to derive fee-based revenues, rather than trading commissions.

However, the inevitable layoffs of advisors may lead to renewed competition in the form of small “breakaway” groups that take a few clients and set up shop.  As former SEC Chairman, Arthur Levitt told Bloomberg News:

“Brokerage is such a personal, intimate business…What we’re going to see in the brokerage business is breakaways from these managed institutions and the beginnings once more of boutique brokerage firms.”

But not so fast.  In a new report by the Spectrem Group, a research group that measures affluent attitudes toward advisors and brokers, the firm found that investors arent happy with their -40% returns and blame their advisors for not being better at their jobs.

The research found that the millionaires had lost 30 percent to 40 percent of their net worth since September and that they had lost faith in their advisers, especially those at bigger firms.

According to Catherine McBreen, Managing Director at Spectrem:

Full-service brokerage firms were the firms whose investors were the most angry and had the lowest performance levels, they were the most likely to say they’re unhappy with their adviser. They feel that the full-service brokerage firms, as opposed to the independent financial planning firms, are more in it for the commissions, for the stock selection, for pushing product.

Individual investor ire, she said, is more pronounced than it was during the last crash in 2002 and 2003.  This is bad news for these new mega brokerage firms and good news for new companies, like Cake, that can help individual investors do better with personalized help.

Clearly there is an opportunity for new models to emerge that can address the needs of individual investors and provide a better service.

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