A senior Wells Fargo executive is warning that the brokerage and wealth management industries are facing a shortage of financial advisors and that it’s not going to be fixed by recruiting talent from rival firms, according to Dow Jones Newswires.
Kent Christian, president of Wells Fargo Advisors’ financial services group, recently told a Securities Industry and Financial Markets Association conference that an increasing number of advisors are nearing retirement age, creating a shortage that will impact the industry and investors.
According to a 2010 report from Cerulli Associates, a Boston-based research firm, less than 25 percent of all financial advisors are under 40 while just 5.6 percent are 30 or younger. The financial advisor workforce is aging (the average age of an advisor is just shy of 49 years old while 14 percent of advisors are over 60 and thinking about succession) and there is a shortage of new talent.
Christian says Wells Fargo, which is the third-largest brokerage in the country, prefers to target potential advisors from other industries with average work experience of 16 years behind them.
Merrill Increases Hiring of Trainees
At the same time, Merrill Lynch has announced plans to hire 2,400 trainees in 2011, a 50 percent increase over last year, according to a Forbes.com Blog. The article points that increasing efforts in a trainee program is a bold move for any Wall Street brokerage these days because the cost of training newbies is high while the likelihood of the trainee becoming a successful broker for the firm is low.
One analyst said training on Wall Street is still very hit or miss. According to the Forbes blog, 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.
But that’s not stopping Merrill or Wells Fargo. Wells Fargo says it could hire 960 rookies in 2011, up 20 percent from 2010. According to one Cerulli estimate, a firm the size of Wells Fargo, for example, would have to recruit 2,000 advisors annually to keep pace with attrition.
Advisor trainee programs at Wall Street’s major brokerages were filled to capacity prior to September 2001 but have since been cut drastically, says the Forbes.com blog. Today instead of hiring new blood, most brokerage firms engage in a vicious recruiting battle for experienced (read: expensive) advisors by luring them with lucrative signing bonuses. (Such sign-on bonuses can exceeed 300% of an advisor’s prior year revenue. The bonuses are typically a mix of stock and cash with the best brokers getting a nice chunk of the latter.)
Meanwhile, other Street brokerages like UBS Wealth Management are keeping their new hire goals flat this year. UBS, which has the smallest advisor force on the Street with roughly 6,800 financial advisors, plans to hire 170 trainees in 2011-same number as 2010.
But that may be the result of other things like the rumor that UBS is looking to sell itself to a competitor like Wells Fargo, says the Forbes blog.