Merrill Lynch (NYSE: MER), Wells Fargo Advisors (NYSE: WFC) and Edward Jones plan to ramp up trainee recruiting in 2011, Registered Rep. has learned. It comes at a time when a number of currents in the business are converging to create what many predict will be a talent crunch. The financial advisor population is aging, with the average advisor nearing retirement age, the retirements of the baby boomer generation are expected to increase demand for financial advice, and the recruiting deals being offered to experienced advisors at rival firms are still at record highs.
Merrill has plans to hire 2,400 trainees in 2011, a 50 percent increase over last year, for its Practice Management Development, or PMD program, according to a person familiar with the firm’s plans. That’s up from 1,600 in 2010. Merrill declined to comment on the numbers, but it did say that it’s planning to overhaul its training program to make it more effective.
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Meanwhile, Wells Fargo could hire up to 960 rookie advisors this year, or about 70-80 monthly, according to spokesman Tony Mattera. That’s a 20 percent increase from last year’s 800 trainee hires. “We expect to exceed that number this year,” Mattera said. “At this point in time we think it will go over it.”
Edward Jones is also planning a ramp up in recruitment. “I think it is probably reasonable to say the numbers in our training programs will be up 10 percent to 20 percent in the next twelve months,” Mike Zaun, in charge of advisor recruiting at Edward Jones, told Registered Rep. recently. That equates to as many as 2,400 trainees for 2011 based on the 2,000 trainees Edward Jones recruited last year.
But at least one analyst said training on Wall Street is still very hit or miss. Today, Wall Street brokerages recruit some four to five percent of prospective rookies who apply for a job, according to Andre Cappon, president of New York-based CBM Group, a securities industry consultant. However, less than 20 percent of those hires, who cost as much as $300,000 to fully train, survive past year two and three on a four- year training plan, he said.
“The reason the rate of attrition is so appalling today is because firms are still selecting too many of the wrong people – they look good, sound good, and have good backgrounds,” said Cappon. “But they are putting them in an environment only a certain kind of individual can survive, and that is a demanding environment where oftentimes they’ll be living off commissions,” he added.
Cappon said the ideal rookie is tenacious, diligent, organized, and a consummate salesperson who can handle rejection well– a characteristic, he said, lacking in vast numbers of today’s recruits. “It takes a lot of energy, persistence and courage – or desperation – to be a broker,” Cappon said.
Though the numbers of new hires are large this year, there’s no evidence brokerages have dramatically enhanced their recruitment process lately to improve the rookie survival rates, according to Alois Pirker, an industry analyst at Aite Group. Therefore, he noted, vast scores of today’s legion of trainees will eventually quit, or be let go. In other words, it’s the same old story. “It’s not necessarily the firm’s fault,” Pirker added. “The thing is they need to improve the processes for selecting rookies.”
Cappon agrees. He urges firms to apply more “science” in selecting winners. Cappon’s company has developed some scientific tools, including “background scoring” to rate the odds of a brokerage rookie succeeding, based on variables such as age, socio-economics, education and previous experience.
Still, brokerages defend their latest efforts. Selena Morris, a spokeswoman for Merrill Lynch said the success rate of Merrill Lynch’s Practice Management Development Program for trainee advisors after four years was in the mid- to high- 30 percent range. “It is one of the most comprehensive programs in the industry,” she added.
Wells Fargo spokesman Mattera said: “It is difficult to get precise industry data but we are pretty confident our retention rate is higher than the industry average.” Jim Weddle, managing partner at Edward Jones, said the firm was taking steps to improve retention rates of new hires, including higher comp to attract recruits who were previously highly compensated in another industry.
“We are always looking to hire the best, top-producing advisors,” according to UBS spokeswoman Karina Byrne (NYSE: UBS). “At the same time, bringing in new financial advisors [rookies] who may have skills and expertise in other areas, and putting them on established teams, ensures that we are also continuing to nurture and develop talent in all ranks.” Morgan Stanley Smith Barney declined to comment for this story. (NYSE: MS)
Cappon is not impressed. He said his research shows a poorer return on the investment on rookies today (because of high failure rates), compared with capital invested elsewhere by brokerages. Cappon said 15 percent is a common return on capital invested by companies today. The so-called internal rate of return on money invested on trainees is 10 percent at wirehouses, he estimates. “In other words,” added Cappon, “ if you invest capital that should earn 15 percent at only 10 percent you are destroying shareholder value.”