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Morgan's Training Makeover

The firm is overhauling its program to make it more like the one at Merrill Lynch, with emphasis on selective hiring and follow-up

Morgan Stanley is in the midst of a major redesign of its rookie training program, the latest in a string of moves by retail head James Gorman to revamp the brokerage operation and make it more profitable. In mid-May, the company announced it would fire 500 trainees, cut the number of trainees joining the firm from the current range of 1,500 to 2,500 to approximately 700 to 1,000 each year, and overhaul the program some time in the second half of the year. The firm wouldn't give many specifics except to say that the whole training process will be redesigned — from sourcing and hiring potential candidates to setting new production and asset benchmarks, to mentoring and follow-up.

In the old program, there was little tracking or accountability, says one trainee who came on last fall and was among the 500 cut. “None of the trainees in my branch ever had a meeting with the branch manager,” he says. The program also seemed very disorganized, he says, possibly because of the wide-ranging changes in management at the firm after Gorman was hired away from Merrill Lynch. “They kept starting things and then stopped. So you were really just on your own,” the trainee says.

Today, the majority of Morgan Stanley trainees don't make it to the three-year mark, says Andy Saperstein, chief operating officer of national sales for Morgan Stanley. And clearly that's not enough. “This will be our major redesign of the training program,” says Saperstein. “By having fewer people we'll be able to give them more resources, better tools, better mentoring. And by hiring fewer people, the people doing the actual recruiting can be more selective. The investment per advisor will go up, but, ultimately, it will be less costly, because more advisors will presumably be successful.”

Wall Street's record at turning rookies into successful financial advisors has been vexingly weak. In general, consultants say that only about 20 percent of advisors make it. (See related story on page 104.) Merrill Lynch is said to have the best program on the Street, however, and anecdotal evidence suggests 40 percent to 50 percent of its trainees are still working in the industry a few years later. It shouldn't come as any surprise then that Gorman is expected to make Morgan's program look more like the one at Merrill Lynch, where he was the head of retail brokerage until last fall. “That would stand to reason,” says Saperstein.

The Difference Culture Makes

Part of the difference between training at Morgan Stanley and Merrill Lynch is cultural, says Stuart Lee, a recruiter who used to manage the day-to-day sales training program at Merrill Lynch. “At Merrill, you're a number, it's very formal, the culture demands that you perform and produce,” he says. At Morgan, the retail side was still heavily influenced by the old Dean Witter culture, which was far more independent — gave reps more freedom.

Whereas Merrill is very careful about screening and selecting trainees, training at Morgan Stanley has historically been more about quantity than quality, according to industry consultants and recruiters. “The old Morgan Stanley way was to throw it all up against the wall and see what sticks,” says recruiter Rick Peterson of Rick Peterson & Associates. That's particularly hard in flat or down markets like we've seen recently, he says. And success is even harder to attain when you consider that the business is getting tougher, with increasingly complex products and services. Meanwhile, the wirehouses are generally trying to hire older individuals with a successful first career under their belts. That means offering bigger salaries to get good people, so the firms can't afford to hire as many individuals — or afford to let them fail.

Morgan isn't the only firm rethinking its training program. “As I look across the industry I see major changes,” to training programs at all of the wirehouses, says Alok Kshirsagar, a principal with McKinsey & Company, where he is co-leader of the wealth-management consulting practice. Even at Merrill, there has long been a retention problem, partly because the training program is so good. “The joke used to be that you should go to Merrill, get trained and then go somewhere else and make some money,” says Lee. Trainees are particularly vulnerable to getting lured away during their first five years at a firm, before they have typically vested in programs that afford them golden handcuffs, says Bill Willis, a recruiter and former Merrill Lynch manager.

Kshirsagar says firms are beginning to hire trainees for their individual specialties, like retirement, or a focus on small business owners, which makes it easier to connect them up to teams. This means moving the hiring process from “local network-based referrals to target profiles and a centralized assessment of the hiring process,” he says. Branch managers are allowed to do the final round of interviews, but not all of it. And then there's mentoring. The trainees who succeed typically do so because they found a great branch manager to coach them, he says. So firms are trying to institutionalize this process. The content of training programs is changing, too, from a focus on technical and compliance training to an emphasis on sales, relationship building and advisory skills.

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