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.

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.

0
Comments

What do you think?

View comments

Recommended for you

Upcoming Event

Oct 23

Conference

Women Adviser Summit - San Francisco

The InvestmentNews Women Adviser Summit, a one-day workshop now held in four cities due to popular demand, is uniquely designed for the sophisticated female adviser who wants to take her personal and professional self to the next level.... Learn more

Featured video

INTV

Financial health of advisory firms is excellent. Or is it?

Deputy editor Bob Hordt and senior columnist Jeff Benjamin discuss the fact that double-digit growth in revenue and assets doesn't necessarily spell a rosy future.

Latest news & opinion

Don't be fooled by the numbers — the industry is in a dangerously vulnerable state

Last year's stock market gains helped advisers turn in solid growth in assets and revenue, but that growth could disappear in the next market downturn.

Divided we stand: How financial advisers view President Trump

InvestmentNews poll finds 49.2% approve of his performance, while 46.7% disapprove. How has that changed over the course of his presidency?

10 states with the most college student debt

Residents of these states have the most student debt when you consider their job opportunities.

Invesco to buy OppenheimerFunds

Deal brings Invesco another $246 billion in assets, as well as high-fee actively managed funds.

Dawn Bennett found guilty of $20 million Ponzi scheme

Jury took less than five hours to convict the former financial adviser and radio host.

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print