Fail / drop out rate?

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Jul 22, 2008 10:06 pm

I've heard many people refer to the fail or drop out rate is upwards of 85% to 90% in this business.  I'll take that as fact unless someone has results from a study to say otherwise. 


 
My question is, do you think the fail rate has been this high always? 
 
I ask this because two of my best friends from high school entered the business in early mid 90's and one is Indy and other RIA and making a lot of money.  They did their stints with UBS, ML, Wells, Fisher, and a few others.  Do you think it was a little bit easier to succeed entering at that time or is it more competitive now?  One of the friends is not the sharpest tool in the shed, lacks sales skills, stutters, is lazy, socailly retarded, and he is doing great!  The other is very sharp, econ/poly sci double major, very outgoing/aggressive, and manages his own portfolio of $85 million. 
 
What gives?
 
 
Jul 22, 2008 11:02 pm

It's always been tough. However, I think today the consumer is more educated and has more tools at their disposal, so they are less inclined to take the "cold call" lead. My father started in this business in the late 60's, and he said all you did was cold call and sell stocks. Everyone wanted to be part of the "action", but had no idea waht they were getting into. The average Joe learns more watching an hour of CNBC today than half the brokers knew back then (not my words).



However, on the bright side, 40 years ago, there was no such thing as a 401K rollover, a 529, etc.. So I think there are far more investable dollars out there than years ago.



BUT, the washout rate is higher than ever (especially for newbies vs. someone joining team or inheriting book). I would say the 90% rate for scratch starters is about right (after 3 years).

Jul 22, 2008 11:49 pm
PraiseHim:

I've heard many people refer to the fail or drop out rate is upwards of 85% to 90% in this business.  I'll take that as fact unless someone has results from a study to say otherwise. 

 
My question is, do you think the fail rate has been this high always? 


Does it matter?  Whether it was easier before or not won't change today's reality a bit.  It is what it is.

Jul 22, 2008 11:53 pm

It's harder today.  The wires have set huge hurdles for newbies to achieve (honestly, I am always amazed when people survive it -- it is grueling). 

 
Markets are over-saturated with seminars - when I started 25 years ago, seminars were a rarity.  Do-not-call lists make cold calling harder.  Commissions were also higher back then -- when I started a mutual fund trade that costs the client a 5.75% S/C & pays me 5% cost the client 8.5% & we got all that.  There were no discount brokers and people had never heard of no-load funds. 
Jul 23, 2008 8:26 am

The failure rate is caused simply because 90% of the people aren't willing to do what needs to be done on a daily basis.


The wirehouse hurdles make it so that even if someone does what needs to be done, a rep can still easily fail.  However, even though they fail out of the wirehouse, they can go someplace else, and they will succeed.

Jul 23, 2008 8:42 am

Anonymous is right - most people will either NOT commit to what it takes, or they don't realize what's involved when they sign up.  Frankly - I don't believe it's any more difficult today than it was 10 years ago.  It's life style - you don't puch a clock, you're always 'on the clock'.

Jul 23, 2008 9:36 am

I agree - it's not more difficult now than 10 years ago.  I do believe it is a very different business than when I came in 25 years ago and that the failure rate is a little higher now than it was then.  The number back then that was thrown around was 1 in 5 would survive and in my experience that was pretty accurate. 

Jul 23, 2008 11:22 am

At the same time isnt their more money to go around now? A Broker I know who got his start at DH Blair back in 1988 said for someone to have $100,000 sent to him was like "whoa." But now there are so many millionaires and billionaires that it makes up for some of the things like do not call list.  

Jul 23, 2008 11:45 am

If the answer to your question is yes - it was easier once upon a time - what difference does that make?

If the answer is no - it wasn't easier - what difference does that make?

This is the type of question best suited for the retired folks sitting in the park feeding the birds, talking about the old days.

Jul 23, 2008 12:01 pm

Look forward, not back. Agree, most not willing to to what is needed to succeed.


Jul 23, 2008 1:55 pm

Morphious,

 
It doesn't matter that much but I was just thinking that if the failure rate was 90% back in early 90's and my one friend who made it, it leads me to believe it can't be that hard to succeed....but I know that isn't so.  So my guess was that possibly it was easier back then......or maybe the guy had wealthy family members and invested all their money...who knows.
 
I agree the only thing that matters is how difficult it can br right now.
Jul 23, 2008 2:00 pm

Ice,

 
I agree, we have much more opportunity and there is more money to be found, more products, regardless if there is more competition.
 
I'm praising Godand identify with Him.  I am not here to discuss faith, I just often define my username with PraiseHim.  I'm not trying to instigate a war on beliefs. 
Jul 23, 2008 2:09 pm

Don't forget the "yield to broker" has also come down...

Jul 23, 2008 2:26 pm

It's hard to believe someone would not do what was needed to succeed....that's the easy part, I think.  If someone, or some firm, had the detailed recipe for success and told me to do this and that, I would do it.  I always thought the hard part was in finding our what the recipe was....the little things that needed to be done to become better or find and close more deals. 

 
As a former golf pro I was never told how to get better to shoot lower scores...I had to figure it out on my own.  Not even my college coach had advice.  If I had a swing coach at an early age like many of the young kids do today I think I would have gone further.
 
When I got into sales 10 years ago I never received any training.  I read the books but was always on my own....barely scraped by for 3- 4 years.  I finally recieved real hands on direction and sales training from a yellow pages company.....video taped presentations, recorded phone calls etc...and then went into mortgage lending and had a 1 week intensive sales training class.  When the sales manager worked with us and said 'do this, this, and this' I did it and was successful.  I ended up being 3rd out of 40 Loan officers that year and promoted to sales management the following year....but that is another story.
 
So I'm guessing a majority of the people entering this business who wash out are either lazy, stupid, or do the opposite of what they were told to do because they think their way is better.  Sounds like the recruiters need to do a better job of weeding out these people.
Jul 23, 2008 3:39 pm

I like the post about there being more money to go around - indicating that there's enough for all of us.  Hogwash - most producers don't want to share in the pool.  I eat what I kill, and I'm hungry!

 
PraiseHim - welcome to the forum!  All glory to God, who gives me strengh each day to make other people's lives better!  To serve my fellow man, is succees beyond measure.
 
Jul 23, 2008 3:56 pm
PraiseHim:

It's hard to believe someone would not do what was needed to succeed....that's the easy part, I think.  If someone, or some firm, had the detailed recipe for success and told me to do this and that, I would do it.  


Knowing what to do is enough for some people.  Not for the vast majority.

To wit: pretty much everyone knows the recipe for good health is to exercise, eat healthy foods in moderation, and to not smoke.  So if everyone knows this, why are so many people overweight, out of shape and/or smokers?

Probably because following the recipe is hard, and requires pain and sacrifice today in the hopes of gaining a benefit tomorrow.  It's called human nature.

Jul 23, 2008 5:31 pm
PraiseHim:

and then went into mortgage lending and had a 1 week intensive sales training class.  When the sales manager worked with us and said 'do this, this, and this' I did it and was successful.  I ended up being 3rd out of 40 Loan officers that year and promoted to sales management the following year....but that is another story.

 
So I'm guessing a majority of the people entering this business who wash out are either lazy, stupid, or do the opposite of what they were told to do because they think their way is better. 
 
Selling a mortgage is 100 times easier than this biz.
Jul 23, 2008 6:12 pm

The grim fact on attrition; The industry in it’s entirety has negative growth in the broker/FA force. Most companies use the “Merrill Model” in which they hire those with a bit of a natural market knowing they will fail. They are using them as nothing more than a temporary prospecting tool. Hence the very high fence one would have to climb.


Every now and then one will make it but that takes holding on for three or more years to be in the club. Stats will say one in nine but that includes those that work at banks etc etc.


One in twenty will make a career at Morgan or Merrill. I spoke with a manager at Merrill and he told me in his class there were 180, this was 11 years ago and that he is the only one left. Safe to say several migrated away from Mother Merrill but that is more indicative of the attrition rate than not. EDJ and AGE/WACH are not as militant in their use of the “Merrill Model” but it’s there no doubt. You pretty much starve out there.


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I would say the true attrition rate is 19 out of 20 within the first 5 years.


Get past that mark and you’re in the club and it’s all gravy.
Jul 23, 2008 8:34 pm
iceco1d:

$1MM today would be like having about $550K in 1988 if you assume inflation is about 3%.  SO a $100MM book today would be like having a $55MM book in 1988.  There's more money, that's worth less, so you need more of it for the same effect. 

 
I was still watching Saturday morning cartoons in 1988, so my observations would need to be taken with a grain of salt.  Yea, there are free markets today, more developed markets today, more commerce today, than there was in 1988.  Heck, there's actually more types of securities, insurance products, hybrid products, and even tax sheltered account types today than there were in 1988. 
 
There also was no such thing as the internet in 1988.  No discount brokers (E*Trade, Ameritrade, etc.).  Much, much less "to do" about expenses and fees.  Much less information available (no internet). 
 
So is it a wash?  I dunno. 
 
Two comments:
1. "$1MM today would be like having about $550K in 1988 if you assume inflation is about 3%.  SO a $100MM book today would be like having a $55MM book in 1988.  There's more money, that's worth less, so you need more of it for the same effect."
 
This probably stemmed from my original comment.  I did not mean to say that people in general HAVE more money (obviously 20 years ago money was worth 50% less).  My point was that a greater % of people's wealth is investable.  Years ago, there were no such things as 401K's, many people did not have access to mutual funds, IRA's were mostly a bank thing, there were no college savings accounts, and most people relied on larger pensions (which weren't rolled over to advisors like 401K's today) versus retirement savings.  How would you get a $250,000 rollover in 1975?  That's why "brokers" were "brokers" and not "advisors".  Retirement was largely taken care of already.
 
2. "I was still watching Saturday morning cartoons in 1988."
 
WTF?!!!  Please tell me that was with a hangover in your dorm room (or at least close).  I don't even want to do the math, that's so depresing.  I guess I'm getting old. 
Jul 27, 2008 1:12 am

Doesn't it seem all the people who have made it take it kind of easy just licking their lips about the newbie?  We work our ass off, bring in all kinds of new clients, new assets and production BUT maybe it's not enough so they get divvied to all those licking their chops waiting for the newbie that's good but just not good enough. So they can clean up the easy pickins.