The Kids Are Not Alright

the classic branch office manager — part alpha dog, part teacher, part corporate middle manager — has all but disappeared in recent years.

As any wirehouse or regional brokerage rep can tell you, the classic branch office manager — part alpha dog, part teacher, part corporate middle manager — has all but disappeared in recent years. Consumed by rising demands from regulators and home-office compliance departments to sniff out possible customer abuses, BOMs say they have little time for coaching — or even for pushing toward sales goals. Often, the little time that managers have left after dealing with compliance issues is consumed by the pursuit of high-priced talent as they try to fill quotas for recruiting proven producers with big books. Managers have less and less contact with the troops, and may have little or none with young brokers; there are few “teachable moments” to transmit the skills and knowledge that BOMs bring to the job.

What is only now coming into focus are the long-term implications of this trend. The BOM job, once among the most coveted in the industry, has become a burden, which seasoned reps are now inclined to avoid. Some branch managers are giving up, returning to production or leaving for independent shops, money-management or financial-advisory firms. And those who remain are not able to fulfill a critical function — to develop the young advisors who will become tomorrow's top producers. Ultimately, say BOMs contacted for Registered Rep.'s third branch office manager survey, this spells trouble for the branch system and for the future profitability of their firms. “It is increasingly difficult to focus on building a business,” says one branch manager. “Where I used to spend two hours a day on compliance activities, I now spend five. It inhibits the growth of my office as well as the profitability of the firm.”

Multiply that across hundreds of branches and you see the problem. “Are BOMs developing FAs, helping them produce?” asks a former executive for a leading wirehouse who now works in asset management. “They can't even afford to do a book review.” As a result, he asserts, even as firms put greater pressure on reps to push toward the seven-digit production goal, “the number of million-dollar producers is lower than it's probably ever been.”

Mortgaging the Future

As frustration with the changing role of the BOM grows, fewer qualified individuals are willing to take on the job. And some of those already serving as branch manager are looking for the exits, recruiters say. “You're seeing fewer people go into branch management and more people going back into production from management,” says Stewart Lee, president of Lee Training in Wellston, Okla. “We're going to see more of a shift toward going independent. There will be a talent drain until firms decide to pay up for professional management.” It hasn't helped, he points out, that many firms have limited BOM pay by placing caps on how much business a producing manager can do; that's to ensure that BOMs are devoting time to compliance, an understandable concern.

“It's not the coveted job it used to be,” says a Merrill Lynch branch manager in the South. And recruiters say more and more BOMs are telling them, “This isn't the job I signed up for 10 years ago.”

The unfortunate result of this shift in responsibility for BOMs is that other areas are given short shrift. Marketing, business development and technology are three areas branch managers say get less attention. At present, the big wirehouse firms are engaged in a fierce recruiting war to snap up their rivals' top producers; in short, training isn't as important as it once was. “Recruiting has become an unbelievable emphasis,” says one branch manager at Smith Barney.

One of the biggest gripes among BOMs is that they're not being adequately compensated. “I don't think the pay is commensurate to the liability,” says one branch manager at A.G. Edwards. “It's losing its attractiveness. It used to be the best job in the industry.” Some producing managers are fed up with the aggravation caused by new regulations, especially at firms where they're putting caps on branch manager production. As a result, they have switched to an independent broker/dealer or RIA shop to earn a more lucrative salary with more freedom to conduct business than wirehouse firms.

Take James “Jeb” Bashaw, who left left UBS in 2001 to go to LPL, where he serves as an OSJ — the rough equivalent of a BOM at an indie. He made the move because he wanted to remain a producing manager but retain some supervisory role — not just handling compliance but mentoring, too. (See profile on page 34.) The move was lucrative as he more than doubled his own production and has generated 25 percent organic growth year-over-year every year since with new hires. As an OSJ, Bashaw doesn't spend all his time reading exception reports: He also coaches. Bashaw didn't want to stay at a wirehouse, because, if you get dinged as a nonproducing branch manager, you're done. “It's one strike and you're out,” he says.

The waning interest in the job and the lack of qualified individuals entering branch management can be seen in the decrease in the number of branches at Merrill, says one former Merrill executive. For example, as part of its latest reorganization, Merrill decreased the number of branches to 135 from 190 branches a decade ago; yet the number of FAs is roughly the same. While firms insist that this type of complexing structure is a cost-saving initiative, insiders say it is also a signal that there are fewer qualified leaders to man the post. In fact, the number of reps going through Merrill's assessment center — three days of grueling interviews and exercises to determine whether a person is management material — is down dramatically, says the former Merrill exec. “There's no way that group has half the skill set the branch managers of 10 years ago had,” he says.

This will undoubtedly help the firm in the short run as it looks to boost its profitability, but what will the long-term impact be? The number of young reps hitting the $500,000 production level is at its lowest in 25 years, says one industry veteran. There's nobody stopping by a young rep's desk to give him a pat on the back for a strong week or help in fine-tuning a client presentation. And with all the racial, gender and overtime suits, the branch manager now feels at odds with the reps he oversees. “It's become an adversarial relationship,” says one former branch manager.

One explanation for the decline of branch-management talent is that the top executives at the big firms never produced and, therefore, don't see the merits of grooming young talent. Mac Gardner of Merrill, James Gorman of Morgan and Todd Thomson of Smith Barney don't know what it's like to run a book of business, reps grouse. Of course, that is the typical broker criticism of management — “they don't understand me, they are off the battlefield and I'm on the front lines.” Rather, today's executives' strengths lie in wringing the most production out of the least amount of cost, reps mutter.

One way to remedy the looming crisis of fewer million-dollar producers, says the former wirehouse executive, is to divvy up the labor. Pay up for an administrative manager and make it a lucrative, prestigious job. Then consolidate the number of branches and pay the branch manager double what he is making now and then hire a local recruiter in each market — the Northeast, Midwest and so on.

Wachovia is trying something different: Management has created a “productivity manager” position, an experienced former branch manager and advisor assigned to coach reps in what Wachovia calls its “major markets.” The individual is supposed to ease the branch manager's burden by meeting with reps from branches in the area and coaching them on the fundamentals of building a book and enhancing the client experience. “There's a tremendous opportunity for organic growth in this industry,” says Richard Getzoff, market manager for the North Jersey region at Wachovia Securities. “The firm that gets it right over the next five years will distance themselves from the competition.” Although the reps-per-BOM ratio seems to be growing, Charlie Peckham, an OSJ at Commonwealth Financial, argues that 50-rep offices are “no longer a workable model” and that, eventually, you can expect BOMs to supervise fewer reps.

For now, though, only about a fifth of BOMs surveyed feel like they have a bull's-eye on their backs. (“There is a bullet out there with somebody's name on it. Your job is to move quick enough to dodge the bullet before retirement,” is how one BOM described the environment.) But the sentiment does beg the question: How will firms develop the top producers of 2010? Given the gritty branch manager/OSJ environment, it really takes a special breed of individual. Sure, they have to work hard and juggle two seemingly different jobs, but they also need to have a passion for people. “I like to see people do well. I like helping others,” Peckham says. Another branch manager from Merrill agrees: “I like the feeling of helping others. That's the only attitude that will survive.” But it doesn't look like the regulatory pendulum will swing the other way any time soon. “Compliance and supervision will continue to be the focal point,” Peckham says.

Those with aspirations of climbing the management ladder with fewer compliance headaches and fatter payouts may want to look over to the independent side of the business, where the grass certainly looks greener. But then who will take care of the kids?

What was your personal gross production in 2004?
$25,000 to $99,999 3.5%
$100,000 to $299,999 22.8
$300,000 to $499,999 11.4
$500,000 to $999,999 14.0
$1 million or more 8.8
No answer 39.5
Mean (including nonproducers) $598,290
Mean (without nonproducers) $325,000
The Average BOM
Number of years as a BOM 10
Personal gross production $325,000
Number of years registered 18.4
Number of reps supervised 15
Number of support staff 7.2
Certifications* Series 7, 24, 63, 65
Number of years at current branch 6.3
Number of brokers fired in the last year 1.6
*Held by over 50 percent of respondents.
What is your branch's gross annual production?
Less that $200,000 3.2%
$200,000 to $499,999 11.9
$500,000 to $999,999 9.7
$1 million to $1.9 million 14.1
$2 million to $4.9 million 20.5
$5 million to $9.9 million 14.1
$10 million or more 13.0
No answer 13.5
Total 100.0
Mean $5.5 million
Median $2.5 million
The Average Branch
Assets under management $638.1 million
Gross annual production $5.5 million
Direct annual costs $1.1 million
Median payout rate $220,000
Clients served 4,770
Number of experienced brokers* hired in last yr. 2.2
Number of trainees in branch 2.5
*Experienced=more than 3 years experience
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