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Wirehouses Needing to Grow, May Look to Grads

SuperUser Account posted on July 14, 2010

By Tom Stabile June 14, 2010

The latest generation of wealth management-focused university degree programs is getting on the recruiting radars of Morgan Stanley Smith BarneyMerrill Lynch and Wells Fargo Advisors. Among the largest programs are those at Texas Tech UniversityVirginia Tech UniversityMinnesota State University at Mankato, Kansas State University, Utah State University and Ohio State University.

But most observers still say that pipeline will likely produce a slim share of incoming rookie trainees, because the wirehouses still favor higher-dollar advisors – a focus not conducive to incubating young advisors who may take longer to become full-fledged producers.

While several top universities today funnel a handful of students to wirehouses, most of the graduates head to smaller brokerages and independent advisor firms, says Derek Klock, a finance professor and program coordinator at Virginia Tech. The university in Blacksburg, Va., has about 100 students in Certified Financial Planner-oriented concentrations and several dozen others on a Chartered Financial Analyst track.

“Most of the [wirehouse] recruiting focus has been predominantly on proven producers, not new hires” in recent years, Klock adds.

For now, the wirehouse interest mostly involves training program executives who are more open to building links with universities.

“We’re exploring working directly with university programs,” says Danielle Papandrea, senior v.p. and head of financial advisor learning forBank of America’s global wealth management unit, which includes Merrill. “We’re also looking at an intern program. We have been discussing both in our strategy meetings.”

Similarly, Barry Krouk, Morgan Stanley Smith Barney’s head of talent management, says the wirehouse is interested in increasing its university hires. And Michael Zuccarello, director of training and development at St. Louis-based Wells, says the wirehouse is not only considering graduates but also has aided Saint Louis University as it prepares to launch an advisory-focused degree program this fall.

The fourth wirehouse, UBS Wealth Management Americas, discontinued its training program in 2008 but recently announced it would reintroduce a smaller effort later this year.

Replenishing the Advisor Base

The wirehouses as a group have been shrinking in advisor count, down from 61,000 in 2004 to roughly 55,000 today, according to Cerulli Associates. While some of the contraction in this timeframe came through planned attrition of lower producers, it doesn’t explain the entire decline. And several of wirehouses also had acquired smaller regional brokerages and added their advisors in this era, says Bing Waldert, a director at Cerulli.

Cerulli estimates that wirehouses will have shrunk from a 20% share of all advisors in 2005 to less than 14% by 2012.

As the average advisor ages, the wirehouses will need to reverse this “shrinking pie,” says Patrick Butler of Alegro Capital, a London-based strategic advisor.


“You need to do three things – grow the broker force, increase productivity, and win net new assets,” says Butler, who also is a Merrill veteran. “Without new blood, you can’t grow.”

Indeed, a former senior brokerage executive at Smith Barney, which last year merged with Morgan Stanley, says the wirehouses “absolutely” need to boost hiring to replace retiring advisors. “They need to get them in the pipeline now, because you can’t hand over the books of business in five years to a two-year advisor,” the source says.

Not surprisingly, several wirehouses have plans to add trainees this year. Morgan Stanley Smith Barney may add up to 2,000, while published reports have put Merrill’s expected intake in the hundreds. But it’s unlikely that many of the hires would come out of university programs, at least not yet.

Papandrea says graduates are less likely to have desired traits such as direct sales or advisory work experience. The wirehouses have historically hired candidates who have networks and consultative skills from careers such as law and accounting.

Current wirehouse training programs are comprehensive in scope. Both Morgan Stanley Smith Barney and Merrill assign veteran advisor volunteers to guide trainees through a centrally planned curriculum, which includes some classroom time. The programs run two years at Morgan Stanley Smith Barney and up to 42 months at Merrill, and cover a range of practice development, marketing, client discovery, relationship management and investment planning skills. Wells has a 19-week core program before trainees jump into practice, with coaches supporting them for two years.

But these programs may soon evolve by necessity. Alegro’s Butler says the wirehouses still typically see only 20% of rookies get past the fifth year. He says the programs must refocus to centralize hiring and training, moving decisions away from branches; train advisors to be part of teams, not “lone wolf” producers; and institute a base-bonus pay system, rather than commission, further into a new advisor’s career.

Butler says each wirehouse is reforming its training program at its own pace, and that none has “blown up” its model. “It won’t all get solved in 2010, but you’re going to see a lot more experimenting,” he adds. “If you have to make quarterly numbers, this is not on the top of the list.”

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But brokerages also should reconsider their focus on hiring second-career trainees, says Rick Rummage, a former wirehouse branch manager who runs the Rummage Group, a recruiting firm. He says if the wirehouses already have dismal success rates with sales veteran hires, why not start with fresh faces?

“I was always looking for that young racehorse that could win the Kentucky Derby, rather than the one that’s 40 years old and never placed higher than seventh,” Rummage says. “If you’re successful in some other profession, you don’t make the move to become a financial advisor.”

Training Tomorrow’s Advisors

The limited wirehouse link to university programs has also been an issue of supply. There are probably less than two dozen four-year programs nationally with a dedicated wealth management-oriented faculty and curriculum, says John Salter, assistant professor and division director of the personal financial planning division at Texas Tech.


And Virginia Tech’s Klock says only about a dozen programs produce more than 10 graduates annually, which translates into few recurring recruiting relationships.

But the programs have been growing because of higher enrollment and demand for candidates from independent advisors. Salter says Texas Tech’s program now has 130 undergraduate, 120 Master’s, and 35 PhD candidates, including dozens who are combining concentrations with law or finance degrees. He says graduate program enrollment has grown six-fold over the past decade.

The programs host a range of courses such as investment and market basics, macroeconomics, retirement planning, asset management, client communication, behavioral finance, entrepreneurship and practice management. They also cover the spectrum of CFP topics.

Still, wirehouses haven’t come knocking in earnest. Salter says some branch managers in Texas regularly recruit, but it’s a local initiative.

What’s changing is attention from corporate offices, such as the recent Wells effort to help Saint Louis University. “We spoke to them about what we would look for in candidates coming out of their school,” Zuccarello says, adding that Wells similarly aided Washington University in St. Louis. “We’re hoping that something comes out of these talks. We are looking for qualified candidates wherever we can get them.”

Saint Louis University also consulted other wealth managers locally, says Brian Betker, the finance department chair. “We have the CFP guide in one hand and input from professionals on the other as we develop the curriculum,” he adds.

Still, Klock says the big hurdle is patience: How long will it take for a graduate to produce? “Putting someone who is 22 years old in front of a wealth management client may not be cost-effective” if the focus is on revenues, not building skills, he says.

Klock says putting third-year advisors on the brokerage compensation grid – which essentially pays out a percentage of the revenue the advisor generates – will weed out most recent graduates. To succeed, graduates would need to work under the wing of a proven producer who over time shares the younger advisor’s revenue and builds an internal succession track – all while imbuing sales and practice-building techniques. Or, he says an alternative might be a longer track where younger advisors are salaried employees of teams for well beyond the three-year mark.

With the right strategy, this model could work, Klock says, serving up the example of veteran advisors who tap younger counterparts to build relationships with the Generation Y and Millennial generation children of their wealthy clients.

The wirehouses say they aren’t planning such wholesale compensation changes, though both Morgan Stanley Smith Barney and Merrill allow advisors to carry younger associates on salary themselves. Those two wirehouses and Wells generally support advisors forming teams with trainees.

“We have a huge emphasis on teaming,” Krouk says. “A formal team arrangement is the desired outcome. We do see the coach and associate forge a joint production agreement a large percentage of the time.”

Rummage says the team concept probably stalls on a practical matter, however: most retiring advisors prefer selling their books of business to a veteran, in order to leave their clients with a seasoned person but also to get fair value.

But the professors say they hope there is a place in the mix for today’s graduates, who are better prepared for the industry than any previous cohort.

“We’re close to the profession,” Salter says. “We kind of expect [the brokerages] will soon be coming to us.”