"2010 Recruiting: A Perfect Storm?"
Paul A. Werlin

Paul A. Werlin is President of Human Capital Resources, Inc, a consulting, recruiting and training firm focused on the bank investment channel. He is based in St.Petersburg, FL and can be reached at paulwerlin@humancap.com. This is the fifth in a series of six articles that will focus on recruiting and retention of Financial Advisors.

What an amazing year in financial services! In 2009, we went from perhaps "the brink" to banks repaying TARP funds and the Dow back over 10,000. And now, we finally seem to be entering a period of some stability and recovery.

While the economy and the country as a whole may have gone from despair to hope, when it comes to registered FA recruiting, 2009 was a record year. Unprecedented numbers of FAs changed firms, left the business or dropped their FINRA licenses and became Registered Investment Advisors. While there are no hard statistics available, many firms have publicly stated that they set recruiting records in 2009. And as we begin 2010, despite the continued economic doldrums, demand for producers — experienced FAs with established books of business — is stronger than ever. Many wirehouses, regionals, banks and independent firms have aggressive recruiting targets for this year. Firms including Merrill/BofA, US Bank, Raymond James, and JP Morgan Chase have all publicly stated their intention to grow by bringing new producers and assets on board. It wouldn't surprise me at all if the industry as a whole is looking to grow their FA ranks by as much as 20% in 2010. So, the question is, where will firms find these producers, and how will they get them on board? I think the answer is, they won't.

So many things came together in 2009 that made it such a successful recruiting year for many firms, while others saw unprecedented defections. First and foremost, the financial crisis that hit us brought the financial strength of many banks/brokerage firms into question. Merrill Lynch, Bank of America, AIG, and many more found themselves under intense pressure. One thing registered FAs don't like is their firm's very survival questioned in the press. It was bad enough that their clients were experiencing large losses in the market, but now their firms were cutting back, defending their reputations in the press and borrowing money to stay afloat. This alone caused many wirehouse FAs to jump ship. And, with the plummeting of the stock prices of these companies, FAs with 401k's or deferred compensation plans with company stock got a double whammy. So, at the majors, just about any FA who was thinking about making a move did it in 2009.

2009 also saw the continuation of the exodus of FINRA licensed FAs walk away from their registrations and go the RIA route. This trend has been going on for several years, but really accelerated last year. Many investment professionals have gotten fed up with the regulatory burdens (and costs) of FINRA supervision and have bought into the argument of the inherent conflict of interest faced by commissioned brokers.

Much has been written about the aging of the baby boomers, and the employment picture their retirement leaves behind. In an analysis I have just completed, approximately 20% of all FINRA 7's are 56 years of age or older. So, we are now beginning to see highly experienced FAs retire or leave the business. I believe we are just beginning to see the effects of this trend.

So, as 2010 dawns, what's the prognosis for FA hiring? I strongly believe it will be the most difficult environment the industry has seen in 20 years. Many of the reasons I believe this are stated above: those FAs who thought about moving have already moved; FAs continuing to go the RIA route, and; FAs leaving the business and/or retiring. But there are several other critical factors that will make 2010 a very tough year. First, traditionally, the wirehouses have had the budgets and resources to train new FAs for the industry. However, with budgets slashed, these firms are no longer pumping out newly licensed FAs. And, firms that are still training new FAs are demanding very restrictive employment agreements that make it difficult (and expensive) for good FAs to move. Second, the competition for prime FA candidates — those producing $300,000+ has never been more intense. So intense in fact, that several of the largest firms have recently announced recruiting packages in excess of 300% of trailing 12 months gross! These firms wouldn't be offering packages like this if FA recruiting were easy! But, demand for established producers with movable books has never been stronger.

What's fueling this strong demand? That's simple — firms need the revenue. The retail brokerage business is pretty simple: once the infrastructure is in place, i.e., clearing, communications, admin, compliance, etc., costs are pretty fixed. It just becomes a matter of volume. Firms need the business. Firms that lost FAs need to replace them. Firms that grew last year want to keep the momentum going.

2010 is shaping up to be a perfect storm of supply and demand. Shrinking supply for many reasons (less FAs "anxious" to move; retirement; RIAs; fewer new trainees), and strong demand will lead (and already has) to large recruiting packages and intense competition for top FAs. So, what can a bank program do to attract the FAs they need in 2010? It won't be easy, but it can be done. To meet their needs, banks must:

1. Use their competitive advantages- referrals, support, and consumer oriented products and services to attract talented producers
2. Target FAs that others may overlook. Most firms are fixated on just "top producers" $350,000 or even $500,000 minimums. Banks should look for "underachievers" or less experienced FAs who have strong upside potential.
3. Build a strong internal referral program. Te days of giving an employee $50 for a referral that leads to a new FA hire are long gone. Build a strong program with "meaningful" incentives for employees who referrer new FAs to your program.
4. Stay active and alert to opportunities. Like politics, recruiting is local. Make sure program management knows the competition and what's going on in their markets.
5. Be flexible and creative. Some wholesalers can become great producers. Relocations can be highly motivated. And, find new and innovative ways to reward production.