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Firms to Recruits: Are You Experienced?

Five years ago, Dave was a rookie rep in a UBS training class, but the former muni-bond trader could easily have been mistaken for an instructor. At 43 years old, Dave (not his real name) was an anomaly at the time an experienced businessman making a career change into the financial advisory business. Today he would qualify as a typical recruit. Chastened by years of inefficiency in their recruiting

Five years ago, Dave was a rookie rep in a UBS training class, but the former muni-bond trader could easily have been mistaken for an instructor. At 43 years old, Dave (not his real name) was an anomaly at the time — an experienced businessman making a career change into the financial advisory business.

Today he would qualify as a typical recruit.

Chastened by years of inefficiency in their recruiting programs, advisory firms of all sizes have shifted gears. Older, more seasoned businesspeople are in. Recent college graduates are out.

“Eighteen years ago, the average age of the new broker was 27. Now it's between 35 and 37 years old,” says Mark Willis, senior vice president at Smith Barney and director of training. “They're a bit older, and a bit wiser.”

A Leg Up

The trend of hiring rookies who are a little longer in the tooth is too new to have generated any industry-level data. But early returns from the firms are encouraging. They say that the experienced trainees are sticking with their firms longer and are better prepared to handle the increasing complexities of the modern advisory job.

Reps like Dave prove the point. In five years, he has built a $39 million book from scratch, and his practice continues to grow. Though he has resisted the urge to make prospects out of his old business contacts, he says that his experience in dealing with those sophisticated, financially oriented people gave him a leg up in wooing advisory clients.

“I would absolutely hate to start this job today as a 30-year old,” says Dave. “You just can't converse with the smart money at that age — you don't know enough.”

Firms have come to understand this. They are increasingly putting their bets — and training money — on guys like Dave who have had 20 years in the business world before they make their first cold call.

That real-life experience gives him credibility with the high-net-worth clients that UBS covets — more credibility than even the brightest young MBA could muster. The rest of his resume completed the package: 10 years of trading fixed-income securities, several years of selling mortgage-backed securities, pharmaceuticals and insurance.

Dave built his business by focusing on retirement. As a baby boomer, he understands the issues facing his clients as they head down the home stretch to retirement. Today, he has about 250 accounts.

UBS isn't the only firm hunting for men and women like Dave. Firms of all shapes and sizes are actively recruiting career-changers and adapting their training programs to meet their needs.

Darin Manis, president of RJ, Makay & Associates, a national recruiting firm in Monument, Colo., says college graduates regularly approach him seeking slots in training programs, only to be disappointed.

“They see ‘training program’ and want to apply, but they're very rarely cut out for what's involved,” he says.

Phil Sieg, managing director and head of business development at Merrill Lynch, says a lot has changed since he joined the firm as a rookie broker fresh out of school 22 years ago. The business is no longer about learning how to build a portfolio of stocks and bonds and mutual funds. Financial advisors now need to know retirement and college planning, estate planning, insurance and even mortgages to provide the kind of investment consulting service that firms like Merrill hope to provide. “It's a very, very difficult first job,” he says. “The business has become more complicated — having transferable skills is a great advantage.”

Better Hit Rate

There is another reason for firms' affinity for seasoned recruits: the costs of training.

“You put a guy in a cube, with tech on his desk, salary and benefits — it's expensive,” says John Brett, a former Merrill branch manager who now works for fund family Lord Abbett. “If he's gone in four years it's a real drag on the firm.” The New York consulting company CBM Group says training and paying a new advisor costs $250,000 over three years. Numbers from the SIA place the costs in the same neighborhood (see chart).

There is some evidence that raising the average age of rookie hires is helping get better returns on training investments. According to the SIA, in 2003 (the latest year for which data are available) the rate of turnover for new brokers (with two years experience) was 35.9 percent, down from a record high of 38.3 percent in 2002. The high turnover is partially a function of the lax hiring practices that characterized the tech-boom years. These days, firms are exercising more caution in their recruiting efforts. This, combined with improving market conditions, should help improve retention even more in coming years.

Still, by other measures, the industry has a tough road ahead on the retention front. According to CBM, just 20 percent of a typical trainee class survives into the third year and only 15 percent the fourth. Dave, the UBS rep, says that of his training class of 130 people, only 30 (23 percent) are still employed at the firm.

Given this climate it's not surprising that firms have focused much of their recruiting energy on poaching reps from each other, proffering record-breaking packages to top producers who are ready to jump ship.

“Firms only have two options: buy the million-dollar producers, or grow their own — and the latter hasn't worked out so well,” says Nick Ferber, a recruiter with Sanford Barrows in Fort Lauderdale, Fla.

The Case for Home Grown

But while huge deals still exist for top producers, recruiters acknowledge firms are slowly looking to build their own talent. They're just being smarter about who they select.

Snaring top brokers is not easy and is increasingly expensive. To keep poachers at bay, firms have lavished new deferred-compensation plans on the most successful producers. As a result, companies are redoubling their efforts to develop talent.

“Training is an absolutely imperative supplement for growth” these days, says Doug Black, head of strategic business development at UBS.

At Morgan Stanley, ongoing management turmoil has caused some reps to flee. As a result, the firm is hiring aggressively. It is looking to add 2,400 reps this year, according to Kevin Whitehead, director of learning and development. That's the most on the Street, according to Manis, who estimates that the other wirehouses are looking to hire between 500 and 1,000 trainees each. Merrill said recently that it plans to grow its advisor force — currently 14,420 — by 5 percent (net) each year through a combination of recruiting and training.

Across the industry, companies are upgrading training programs to better prepare reps for the growing demands of the job. Morgan has lengthened and upgraded its training programs — both for incoming reps and for sales managers. In 2003, Merrill upgraded its training program — extending it to five years. Reps are required to complete two modules of the CFP in the first two years and strongly encouraged to attain the full CFP at the end of five years. While declining to provide specifics, Sieg says better screening of candidates and the improved training have already produced slight improvements in retention rates.

UBS stopped its training program in 2003 for six months to “retool the program to better fit the clients,” says Black. The new program places a strong emphasis on wealth management and fee-based services. Black says the firm hired 900 trainees in 2004 and plans on hiring 1,200 this year. While every trainee must have five years experience — “to show a pattern of success” — so far, of the 2004 class, Black says 36 percent hold advanced degrees, and 40 percent earned more than $80,000 in their previous careers.

Dave, no longer a newbie, is helping advance the cause, vetting applications and interviewing prospective new reps. He confirms that the caliber of rep trainee is climbing fast. He says he has interviewed many individuals with impressive credentials, from a former family-office executive to a retired business owner. “In the five years since I started I've seen an utter sea change in the quality of the people we're hiring,” he says.

Everyone Loves the New Guys

The competition for these sophisticated newbies can be surprisingly fierce.

A Smith Barney broker tells the story of his 40-something friend, who recently sold a medical supply business and threw his resume in the ring for the wirehouses to fight over. He incited a bidding war and received a nearly six-figure salary.

“Small business owner with successful business management experience and connections to the medical world, wealthy medical professionals — he was exactly what they're looking for,” says the broker.

Manis says that while the very best trainee candidates can get as much as $100,000 in salary, that is rare and the national average salary for trainees is more like $50,000. UBS' Black wouldn't comment on trainee compensation at his firm but acknowledged it has increased significantly in the past couple years.

The pay upgrade is necessary: “Otherwise, these kinds of people won't be attracted to the job.”


One Merrill Lynch trainee has found that the best way to build a book is the old-fashioned way: by working the phones.

The rep, a 32-year-old law school graduate and CFP who had done stints at an estate-planning firm and in DeLoitte & Touche's tax and financial planning department, has created a $40 million practice in less than three years. (Merrill insisted on anonymity for the trainee.)

“I built my business by calling business owners,” she says, noting that one reason for her success was that her prospecting targets were far from random. “I carefully selected them by doing research on their business profiles so that I would have something unique to offer them at the outset.”

She says her legal and estate-planning background greased the wheels and made her presentation more articulate, but she rarely tried to turn old business associates into clients.

She's not the only one picking up the phone. Despite the Federal Trade Commission's national Do-Not-Call Registry (see and NASD rule 2212 (see, which together govern cold calls to consumers, phone work remains an essential part of the brokerage business.

“Even with the restrictions, cold calling is still an important part of growing a book,” says Kevin Whitehead, director of learning and development at Morgan Stanley. Whitehead says his firm's training programs devote time to the art of calling and conversing with a prospect.

Even established producers swear by the cold call: Walter Lunsford, an Advest advisor in Cincinnati and one of Registered Rep.'s 2005 Outstanding Broker Awards winners, says he still gets new clients from cold calls.

True, advisors must be careful not to run afoul of the new regulations, but in some ways these are a boon to prospecting. By banning random solicitation calls to consumers, the legislation has, in effect, forced advisors to approach their prospecting more scientifically — a development that benefits clients and advisors alike.

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