NEW YORK TIMES JOB MARKET ROUNDTABLE
“Best Practices in Recruitment and Retention of Financial Planners,” Fall, 2005

(Some of the ideas addressed in this roundtable formed the basis for our March cover story, “Our Diversity Problem,” By Halah Touryalai.)

Anat Kendall: Hello, everyone. On behalf of The New York Times and Registered Rep. magazine, I’d like to welcome all of our participants to The New York Times Job Market Roundtable. Our purpose here today is to have a robust discussion of “Best Practices in Recruitment and Retention of Financial Planners.” My name is Anat Kendall, I’m with the American Institute of Certified Public Accountants. I am director of financial planning. The AICPA has 350,000 CPA members from 45,000 firms; we also have 80,000 financial planning members who practice in some form or fashion in the financial planning industry. Recruitment and retention is very important for our firms, and I’m happy to be here with all of you to discuss that topic that is very pertinent to our profession, as well. Let’s begin by introducing ourselves, telling a little about our respective backgrounds. I’d like to start with Michael Brown. Michael, please.

Brown: My name is Mike Brown, I’m the vice president of recruiting for Charles Schwab. I support the individual investor enterprise, which includes all of our branch offices nationally, our service centers, our bank, and all the marketing areas that support essentially the retail side of Schwab’s business. I’ve been with Schwab for three years. I spent 17 years prior to Schwab at Merrill where I was at various points of recruiter/financial consultant/VP of HR for the sales side of the business, and also the National Director of Financial Advisor Recruiting.

Geracioti: I’m David Geracioti. I’ve been at Registered Rep magazine for the past four years. I’ve been a journalist for most of my adult life, including a stint at SmartMoney magazine where I was a senior editor for investing. But I should declare that I have a little bit of experience in financial services. When I left SmartMoney, I went to work for a boutique third-party marketing firm; I represented an asset manager based in New York and one alternative manager based in London. They were wholly separate jobs. One was a wholesaling-like function for a small, independent manger in New York City. The other one was representing a London-based alternative investment manager to tax-exempt institutions, which was a very different exercise from the retail job. So that helps in my capacity at Registered Rep. So we’re here today to talk about recruiting. Recruiting is as important as ever, and I’m eager to hear what you all are doing on that front.

Schmidt: I’m Steven Schmidt, a financial advisor at Wachovia Securities in New Jersey. I’ve been in the industry for five years. I began my career at Merrill Lynch where I worked for three-and-a-half years, and then recently transitioned in May of 2004. I currently manage over 200 clients across the country, and my specialty is wealth management for domestic partners and the gay and lesbian community. Within Wachovia, I am also the Director of the Gay and Lesbian Diversity Group.

Shapiro: I’m Ken Shapiro, and I’m a financial advisor with Merrill Lynch. I’ve been at Merrill Lynch for approximately four years. Prior to Merrill Lynch, I was an entrepreneur after getting my MBA at the Wharton School. I started a company in the environmental services business, which I ran for about five or six years; we sold it to a public company that I helped run, as well, and then I started a software company, which was venture backed, that I ran for about four years. After leaving that business, I joined Merrill Lynch to pursue a second career in a completely different field. My focus is working with entrepreneurs and corporate executives. The vast majority of my clients fall into those two areas.

Woodward: I’m Price Woodward, and I’ve been with Edward Jones for 21 years. I started as an investment representative in South Carolina, started a branch office there in 1984, left the field in 1995, and moved into the home office. I’ve been in the home office for the past 10-and-a-half years. I’ve had several jobs in marketing and managing our sales force in different parts of the country. Back in February of 2005, I took over responsibility for recruiting investment representatives in the US, Canada and UK.

Tippets: My name is Ed Tippets. I’m with Northwestern Mutual and celebrating 35-and-one-half years with them. I’ve been a lawyer for the company, a life insurance agent, a registered rep. I was a managing partner in the San Francisco office for 20 years. I currently work at our home office, and I have responsibility for recruiting, retention, training, estate planning, financial planning, management development programs, and financial consulting to our branch offices. I look forward to this session, because as usual in these kinds of meetings, I learn much.

Kendal: As I mentioned, I’m with the AICPA. I spend much of my time working with CPA financial planners and trying to help them make their businesses successful, and recruitment and retention is a major issue that they’re facing, as well. So, let’s move on to our first question. We’ll start by talking about the backdrop of the financial services industry, and we’ll start with the question: Is the financial planning industry growing? Why? And what are the hottest areas of growth? Let’s start with Ed.

Tippets: Is it growing? Yes. It probably begs the question what we mean by “financial planning.” There are segments in the market that are growing that need different kinds of planning. There is the advisory business -- in my opinion it’s the fastest growing area of financial planning. Estate planning, for obvious reasons, is the slowest-growing area. But there is also segmented kinds of planning done by the retail business, represented here by many fine companies who do not do total financial planning but more private planning. I think all of those areas, except for the estate planning business, are growing rapidly.

Kendal:Ken?

Shapiro: My impression is that the industry is expanding and growing. From my experience, the area that seems to be growing most quickly, and has the most potential, is the holistic advisor area where you essentially work for your client like a personal CFO and outsource for them, handling all of their personal business, including financial-type issues. You become the go-to person for them, where any financial question they are considering, whether it be for their business or their individual family situation, you are the person they come to as a resource. Then if you don’t have the answer yourself, you direct it internally to a specialist within the firm who understands the area.

Kendal: Steven?

Schmidt: I think the need for total financial planning is growing, but the planners that are qualified to provide the service that their clients are looking for has actually contracted.

Kendal: Steven, what do you consider the professional profile of a successful or a good financial planner? What credentials do they have, what experience do they have?

Schmidt: I think someone qualified to do wealth management would need the certified planner designation or the CEMA, or Merrill has a certified financial manager designation. Some firms have internal designations that are similar to the CFP. So, I think holding one or multiple of those designations is important. And I think that clients more than ever are looking for that in their advisors.

Kendal:Michael?

Brown: Yes, I would agree with Steven. I think there is a premium being placed by clients on an advisor’s experience level, their ability to articulate to the client how they’ll work with them, what they’ll do for them, and the value that they’ll add. And I think there are lots of people in the industry who are quite successful without the credentials, but I think they have the ability to sit down with a client and talk from a broad base of experience and say, “Here’s how I approach my job… here’s what I’ll do for you… here’s what I think your needs are… here’s how I’m going to help you… here’s how we’ll interact… here are the services and fees,” you know, disclosing everything, but describing a business model so the client feels comfortable engaging in that relationship.

Kendal: Do you all feel that in order for a planner to be successful, they need to partner with others who have expertise in other pieces of the industry?

Shapiro: I would say definitely so. I’ve been in the business for about four years, and I think the industry has changed a lot. I was mentioning to Michael that I spent some time as an intern in this business back in 1986, 1987 -- when it was a highly transactional industry, which was much more about making commissions and selling stocks. Now I think that people like Steven and myself are positioning ourselves with our clients as their trusted advisor, and if they’re going to come to us with all kinds of questions that are very specific where the answer could make a major difference in their lives, you can’t possibly learn enough about estate planning, insurance, investments, lending, etc., to know everything about every topic. So you have to know enough to understand what questions to ask and how to find the right solutions you need, to find specialists within the firm or along side the firm to help your clients.

Woodward: I agree. I think it’s important to partner with other professionals who can bring in the expertise. It’s very difficult for one person to be an expert in estate planning, and in taxation. We think it’s very important for a person who’s in the financial advisor role, or the investment representative role, as we call it at Edward Jones, to know enough about each of the disciplines to be able to ask the right questions.

McGovern: Again, my apologies for being late. I am Bill McGovern. I’m Senior Vice President of Business Development for Raymond James Financial Services, which is primarily the Independent Contractors Union of the Raymond James organization. I’ve been in the business since 1983, and I started out with the International Association for Financial Planning where I managed member services and corporate services for them for several years before joining Raymond James in recruiting, and I’ve been doing that for about 20 years now.

Kendal: We’ll move on to the recruitment and retention portion of our discussion. What obstacles do you face in recruiting and retaining financial advisors/ planners, and what are the most effective ways to overcome these obstacles? Bill? If you don’t mind, we’ll start with you.

McGovern: That’s a really big question. At Raymond James, we have a very concerted recruiting effort, not only on our employee side, but on our independent contractor side. One of the challenges we’ve had in looking out there to recruit is finding ways to accommodate whatever model a financial advisor chooses to employ, and one of the reasons we went to our, what we call, Advisor Choice Program the last couple of years was because it let advisors decide what model they would prefer to work with. We wanted to provide a platform that could support what now are about five different models for doing financial planning.

Geracioti: When you’re recruiting, you have to pull somebody in, and you want to get their retail clients to come with them. How do you differentiate yourself to the potential retail advisor?

McGovern: It’s important that we offer them a platform of products and services and give them all the tools they need to deliver the best service they can to their clients, and that takes a pretty broad platform in today’s world. It is far beyond just managing investments. I think the old, what we would call, stockbroker model of managing new investments, stocks and bonds and mutual funds -- I think that’s one element of it. But there are far more elements involved in the average investor’s life and lifestyle that need to be managed or could be managed effectively by a good financial advisor, and I think it’s incumbent upon us as firms to kind of see that and be able to deliver that.

Geracioti: I was recently at the SIA conference, and an executive for a firm that’s being acquired was complaining to me about all these other firms that are “vulturing our people.” Are you all seeing that?

Tippets: We’ve taken a counter-environmental approach, and it’s actually a storybook approach. Ninety seven percent of the people we recruit have no experience in financial services or the insurance business. We rarely ever take somebody from another firm.

Geracioti: Why?

Tippets: It’s too expensive. They go from one place to another, and it’s too disruptive. We train them from scratch.

Geracioti: Is it cheaper than recruiting?

Tippets: I realize it’s expensive both ways. We believe we can bring them into the business. We do not hire advisors. We hire young people who have certain skill sets who want to be advisors and put them on a career path to be an advisor. We teach them first the sales process of meeting and developing new clients, and we go to the market in different places when we start them. Our retention after four years is 98 percent, but the 2 percent we lose are really good.

Kendal: Are others using this strategy?

Woodward: Yes, we always have. Historically, 85 percent of all the people we hire are from outside the industry, and about 15 percent of the people we hire are within the industry. The problem we have recruiting people within the industry would be two factors: First, we look very different from the rest of the industry. We have one-broker offices, and we have one full-time assistant, and most of the brokers who are working in other firms are working in multi-broker offices and either a) don’t want to go work in an office by themselves, or b) they’re working in a team of people and they’d like to take the team. But because we only have one-broker offices, the team can’t come.

Secondly, of the 15 percent of the people that we do hire that come to Jones, we don’t pay money upfront. We want them to come because they think it’s a cultural fit. We would like to get more people from the industry, but quite frankly, we’ve made decisions about things that we want to do and things that we don’t want to do. We’ve decided that we don’t want to be all things to all people. It’s not that our model is right or anyone else’s is wrong, it’s just the path we’ve chosen.

Tippets: I might say that just from an outside observer, you guys have done a terrific job of building a great model that works really well across the country, and a terrific job of selecting and hiring and training people -- probably as good as anybody I know on the street. The challenge of hiring and training people has always been in the attrition rate. I don’t know that anybody’s figured out how to do that successfully and break the magic 50 percent number, which makes it a very costly thing to do, and yet, when you start running the numbers compared to what you’re willing to pay to attract an experienced, trained advisor, it’s probably not a bad deal if you can do it. I would say you guys are probably doing it as well as anybody I know.

Kendal: Why don’t we describe what you all offer in terms of retention incentives or training programs. Ken?

Shapiro: I can’t really speak to retention programs, but as far as training, Merrill Lynch has a training program called the Passive Achievement Program (POA), which, doing all the research I did before coming into the industry about four or five years ago, was the most comprehensive training program, at least on the wirehouse side. As far as in-depth knowledge, all the different practice areas, how to build your business, how to work with clients, all the different financial planning techniques, etc.

Brown: Our training program is called Pathways To Success, and again, we’re hiring people who are existing registered reps, Series 67 and 63, most of them, with three plus years experience at another firm, and what we focus on in our training program is learning the infrastructure of Schwab products and services, our sales process: how to succeed within the confines of our organization, and then we do spend a lot of time on the so-called softer skills relationship management, how to run your practice, problem solving, customer service, those kinds of things -- some technical, some softer skills.

And I think on the retention side, we believe that creating a good place to work with the right culture with reasonable compensation for people, good benefits, and a strong mission that people can connect to psychologically, makes people stay.

Geracioti: Because of calls by advisors or other management types from other firms and recruiters, there’s an “anti-raiding” provision. What is that about?

McGovern: I don’t know that it’s an NASD rule, but there is enough legal precedent out there that says, if we, as a firm, were to recruit somebody away from another firm, there are ways of doing that that are appropriate and above board and professional. The raiding issue gets into the volume of business and the number of people you may recruit from another firm at one time.

If a firm is recruiting somebody who’s in a managerial role, like a branch manager who has an obligation to his firm to manage that office and that business, and he participates along with the other advisors in the office and says ‘let’s go switch firms,’ the firm that they leave has the right to come back and say ‘that was unfair and we’re going to sue you.’

Woodward: I would really be interested in knowing what the other firms are doing from a diversity-recruiting standpoint. We’re working very hard to increase our number of female advisors in our business. We need advisors who look like the population that is being served in some parts of our country, and it seems like a lot of highly qualified minority candidates are in very high demand, and I’d like to learn, if I could, what some of these other firms are doing. We’re making a concerted effort, but I’d say we’re probably not where we want to be.

Brown: We certainly haven’t gotten this totally figured out yet, but the one thing we have learned is that if it’s important, you have to staff it, so we have a number of people on my team who are dedicated diversity recruiters who are minorities or women themselves. Several of them have been producers in the industry, so they can speak the language, they know the issues that people deal with, not only in trying to be successful in this business, but what it’s like to be a financial advisor if you’re a woman, or if you’re African-American.

Kendal: Ed?

Tippets: When you have a legacy like we have of 150 years of sound sales dominated by white males, and when you know you’re greatest resource of recruits are referred leads from existing financial reps who give you white males, you can see that we just keep going around. So what we’ve decided to do is we have a second area that has been a source of recruiting that has been highly successful for us, and that’s in the college intern programs. So, when we start to think about where are the minority candidates that we can talk to, they’re in college, so we’re going to step way back and build out our college intern programs. We’ll be donating more chairs to universities, more scholarships. We’re going to start trying to recruit minority candidates who are seniors in high school eventually, to move them through college in order to diversify our field force.

The other part of the minority candidate issue that we’ve had is if you’re trying to recruit minority MBA’s, the competition is ferocious for them. It’s a bidding war, and we can’t play, so we’re going to step way back to see if we can help people get through college.

Geracioti: Playing devil’s advocate again, what’s the “right” number of minority financial advisors or minorities working in the financial services industry, in the retail advisor capacity. Is it 10 percent? 20 percent?
Woodward: You have to ask yourself, why do you want minority candidates? The reason is to enter minority marketplaces, and you can’t get in without them. The way you pick that number is you look at those markets, and you say, okay, in Texas, in Southern California, in Florida, in Manhattan, in San Francisco, you have different market makeups, and so we, as a company, look at a specific market.

I would say there’s a second reason you want to hire minorities, and that is to give them an equal opportunity. But you make the point, where should we be?

I would throw out that maybe a starting place would be looking at just the percentage of women in the workforce, as an example, like 46 percent. I don’t know why we wouldn’t want to have our sales force mirror not only the workforce but also the population of United States investors.

Geracioti: When recruiting these highly sought-after people, are the deals done differently? Like is there a sign-on bonus?

Schmidt: I would say not only does the firm have to maybe offer to pay a premium to the advisor for allowing them into that market, but the firm also has to support the community or market that you’re targeting from a corporate standpoint. I wouldn’t work for a firm that didn’t support the community I was targeting, or didn’t pay me a premium to do it, because another firm would.

Kendal: We’re looking at a lot more people who probably need financial planning in the future than even need it today. How are we developing that workforce and what are your firms doing to participate in that future development process?

Woodward: I think the biggest thing we do is at the broker level out in the field with our 9,500 brokers. Many of them are involved in their communities teaching investment classes, getting involved in programs at the high schools and teaching classes, speaking at community colleges, and our brokers have found this to be very rewarding and, down the road, beneficial to their business. Fortunately, most of our brokers, whether they’re in small towns or big towns, are involved in the community in a number of different ways, and I think most of our brokers have found out that you really can’t out-give a community, and I think most of them fully embrace the opportunity to teach at all levels in the community.

Kendal: Ken, what are you doing in your firm?

Shapiro: I think that one thing Merrill does a very good job at is actually providing us, as the advisors, an opportunity to constantly learn on the job, going to seminars, training programs, not just on investment products, but on proper processes, to figure out how to do the right thing for the clients on estate planning, on ways to use insurance

Kendal: Bill?

McGovern: We invest an awful lot of money and effort into professional development in trying to provide ongoing educational opportunities for our advisors to keep up with what’s going on in the world out there. The laws keep changing, and the rules keep changing, and the marketplace keeps changing, so I think it’s important to start with keeping our advisors educated.

I think it’s also important to educate the client. And there are a lot of initiatives going on out there. At the SIA meeting recently, for example, they were talking about the stock market game. A very successful program that’s helping to train kids in school about investing in the stock market. When I look back on it, I’m surprised that there’s nothing in our public school system that seems to address this issue sufficiently. There are two fundamental things that I think we all grow up with: managing our health and our money, and they’re both woefully inadequately provided for in the public education system.

Kendal: Do any of the firms here have a concerted financial literacy effort similar to the one that CitiGroup launched about a year ago?

Brown: It’s not so much a financial literacy program as it is part of the Schwab business model. We’ve got a unit called Corporate Services that’s in the retirement plan business, 401(k), stock options, stock purchase, and we have a very heavy investment in education staff that goes out to those client companies and teaches their employees about managing their 401(k) investments, managing their stock option investments. So it’s one way, it’s not everything, but it’s one way to get out there, to teach people early on what they need to know.

Kendal: Any final thoughts from anyone?

Shapiro: From my perspective, I think there are a lot of misperceptions about this business. First of all, from the perspective of the advisor, who is looking at this as a new career, I think most people don’t understand what the business is about, what you do, how you make money in this business or don’t make money, it’s not a career about getting rich quickly. I tell people it’s a staircase. If everyday you do the right thing for your client and you always look out for their best interests, over time, the business will be very rewarding back to you, but you shouldn’t come into it expecting it to be like that up front.

Kendal: Thank you, everyone. I just want to thank The New York Times and Registered Rep magazine and each and every one of you for this really wonderful conversation that we’ve just had. Thank you.