Wirehouses have hard time building up broker head count

Competing for recruits is costly, and trainees face a tough market

Feb 14, 2010 @ 12:01 am

By Dan Jamieson

The big wirehouses face major challenges that could thwart their announced plans to recruit brokers aggressively and hire more trainees, recruiters and analysts say. Like the industry as a whole, the wirehouses have an aging work force and need to replenish the ranks. But costly competition for top recruits and a tough market for rookies will make it difficult to increase head count, skeptics say. “It's tough to see how [big] firms can grow faster than their normal attrition rates,” said Danny Sarch, founder of Leitner Sarch Consultants Ltd., a recruiting firm. Wells Fargo Advisors' goal of adding 1,400 representatives — 400 of them trainees — and Bank of America Merrill Lynch's reported plan to hire 2,000 brokers over the next year — most of them rookies — isn't enough to make headway, he said. For a firm such as Wells Fargo, “they've got to hire 1,500 just to stay even,” Mr. Sarch said. Last year, Wells Fargo hired 1,700 reps, 400 of them trainees, company spokeswoman Teresa Dougherty wrote in an e-mail. Last year was an unusual year that saw more advisers in motion, she said.

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Merrill spokeswoman Selena Morris declined to confirm the 2,000-broker goal, but wrote in an e-mail that the firm intends to “bring in hundreds of trainees this year.”

The firm's training program originated in the 1940s and has been running continuously ever since, she said.

In September, Morgan Stanley Smith Barney LLC chairman James Gorman said that his firm planned to hire 2,000 trainees this year.

“We expect [financial adviser] head count to settle in at the 17,500 to 18,500 level for the foreseeable future,” Morgan Stanley Smith Barney spokesman Jim Wiggins wrote in an e-mail.

He declined to specify hiring goals for this year or disclose how many brokers the firm hired last year.

The firm reported 18,160 global representatives as of Sept. 30. It needs to hire about 1,800 reps annually to make up for a normal 10% attrition rate, Mr. Wiggins said.

Mr. Gorman “promised the 18,000 adviser number to analysts,” Mr. Sarch said, so the firm will have to at least make up for normal losses.

Last year, UBS Financial Services Inc. shut down its training program in the face of financial pressures.

Company spokesman Kris Kagel said that the firm still selectively hires new brokers to fill specific slots in adviser teams.

He declined to comment about the firm's overall hiring or training plans.

Robert McCann, the firm's retail chief, told Dow Jones Newswires in November that UBS will focus on retaining advisers rather than recruiting.

The wirehouses as a whole “haven't increased broker head count in five years,” said Bing Waldert, a director at Cerulli Associates Inc.

“If you're a major firm, with a significant market share, the issue of a shrinking adviser population affects you pretty deeply,” he said.

That is why Mr. Waldert and other observers welcomed the news that firms may be ramping up training programs, in addition to recruiting veterans.

“The big mandates [to add brokers] are a sign that at three of the four wirehouses, [top executives] are really positive” about building for the future, said Darin Manis, chief executive at RJ & Makay LLC, a recruitment firm.

With an estimated $40 trillion to $130 trillion in wealth transfers coming over the next 40 years, “I do think it's a good idea to train new people,” said Tim White, managing partner at recruiter Kaye/Bassman International Corp. “It just makes sense demographically,” he said, because for every three advisers who retire, only one new one is being added.

AT A CROSSROADS

But Mr. White is also among the many skeptics who doubt that the major firms can significantly build their head count without breaking the bank.

Paying out recruitment cash is “insane,” he said.

“Tell me how paying 150% upfront and another 150% on the back end pays? How do they make money on that?” Mr. White said.

Competition from independent channels is another head wind that the major firms face.

The independents are “taking people out of wirehouse land” and helping to keep recruitment offers high, said Mark Elzweig, president of Mark Elzweig Co. Ltd.

And adding new brokers is always tough.

For trainees, it will “probably be more difficult than ever [to build a book of business],” Mr. Waldert said.

Do-not-call lists make cold-calling impossible, and clients expect some financial planning advice, he said. “It's difficult to start that kind of practice from scratch.”

At the same time, firms have higher expectations for rookies, Mr. Waldert said.

“We've been talking to some reps with three to five years' [experience] doing about $150,000” in annual production, a lower-than-normal result reflective of the difficult market, Mr. Sarch said.

If younger brokers aren't able to stay at their firms, their opportunities are limited, he said.

At the same time, firms are bringing in rookies who probably won't do any better, Mr. White said.

Even trainees who do well aren't always welcome, said Matt Oechsli, president of The Oechsli Institute Inc., a training firm.”Rookies are high-maintenance,” he said.

“What's the incentive for a manager to spend time with a kid who [is doing well]? That trainee is still a cost to the branch” compared with a veteran broker, Mr. Oechsli said.

Some managers and branches are good at coaching and teaming new brokers with experienced veterans, who act as mentors, he said. That is a practice that most observers say is required if a trainee is to have any chance of succeeding.

But in some cases, trainees get little support, Mr. Oechsli said.

“It's almost a crapshoot,” he said. “There's little quality control.”

E-mail Dan Jamieson at djamieson@investmentnews.com.

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