Merrill Lynch makes bold moves to train new recruits for an RIA-centric future

The rethought training program suits up new advisors -- many of them career changers -- for independence as well as for the wirehouse path

Wednesday 11.21.12 by Lisa Shidler

Others are impressed by Merrill Lynch’s in-depth approach to training new advisors. “I would say kudos to one wirehouse for realizing we’ve got to get back to training,” says Ryan Shanks of Finetooth Consulting. “Otherwise the industry will have a ridiculous shortage of advisors. The marketplace has been screaming for this.”

Shanks says it’s possible this new training initiative could be good for the RIA movement especially if some of these advisors decide to go independent in the future. “The independent arena is always a compelling story for people who want more control, better income and more diversity in their business,” he says.

The really hard part

Munoz feels that RIA custodians have a unique opportunity to create their own training program. Last week, Charles Schwab & Co. announced its Schwab Advisor Services would offer training to younger advisors. See: Schwab is creating an RIA MBA-equivalent to grease the skids of internal succession — and internships to build an RIA worker-bee talent grab pile.

Chip Roame: I don't see [Merrill's program] as related to stemming the independence tide.
Chip Roame: I don’t see [Merrill’s
program] as related to stemming the
independence tide.

“In the industry, we think the hard part is recruiting, but the hard part is actually training,” she says. “I do think the custodians can make a difference with their training programs.

Charles “Chip” Roame managing partner of Tiburon Strategic Advisors says the firm is making a smart move but he doesn’t think it will affect the larger trends in place.

“This is a savvy business move, likely to lead to higher production quicker and more stamina in the role, but I don’t see it as related to stemming the independence tide.”

Roame suspects that the other wirehouses will follow will similar models.

'Abysmal flop’

Despite the revamped approach, Merrill firm faces an uphill battle in the quest to gather new talent, says Mindy Diamond, of Diamond Consultants in Chester, N.J. All of the wirehouses, including UBS, Morgan Stanley and Wells Fargo have had training programs in place for quite some time, but she points out that none of the firms have been widely successful despite frequently updating their efforts. See: Merrill Lynch springs a 62-advisor, $13 billion asset leak in the first quarter.

“They’re all looking to find the magic solution,” Diamond says. “The success rate is dismal. The training programs have always been a consternation for firms. They can’t find the secret sauce. It seems no matter what they do the failure rate is very high.”

Mindy Diamond: The failure rate is very high and the success rate is dismal.
Mindy Diamond: The failure rate is
very high and the success rate
is dismal.

But Diamond adds that even though the majority of participants in these programs fail, the ones who do succeed are often top- ranked advisors.

“The ones who make it are really successful,” she says. “There aren’t that many in the middle. They either fail early on or are very successful.”

A former Merrill exec who asked not to be named says that Merrill Lynch has spent $1 billion on its training program in the last five years with little to show and the company is poised to spend about $250 million annually on this revamped program.

“It will work better because the original program was such an abysmal flop. You put $1 billion down a rat hole the last five years. How can this be worse?” the source said.

The source says the highest rate of success for Merrill’s training programs over the years has always been with Merrill’s advisors’ own sons and daughters as well as clients who become advisors. Outside of those new hires, the training program hasn’t been successful.

Toxic locker room

While Mathis declined to state how much the firm is spending on its training program, he says the firm feels very good about where it stands in making this investment because it’s important for the company’s future growth.

“We’re hiring more than our competition by a great margin,” Mathis says. “We think it’s the right business development for our business or we wouldn’t be making the investment.”

Merrill Lynch’s move is right for more reasons than the company is stating explicitly, according to Jeff Spears, principal of Sanctuary Wealth Services of San Francisco.

Jeff Spears:  The typical corner office recruit is a management nightmare because they make the locker room -- to use a sports analogy -- toxic.
Jeff Spears: The typical corner
office recruit is a management nightmare
because they make the locker room
— to use a sports analogy
— toxic.

“They finally realized it’s a loser’s game to keep [poaching and] paying up for big producing brokers. It’s a better bang for the buck to hire these people and I agree with them. People they hire are going to do what they tell them to do. The typical corner office recruit is a management nightmare because they make the locker room — to use a sports analogy — toxic.”

Spears acknowledges that these training programs have struggled to get high success rates and says he feels the firm has learned from both its successes and failures and that’s why it’s crafted this new longer and more thoughtful approach.

Making the math work

Currently under the new program, the company’s success rate is about 40% of trainees who join the program and graduate successfully in three years. Mathis hopes the firm can boost that rate to 50%.

Spears, a former national sales manager for Bank of America’s brokers, says that training program need to be 30% to 40% successful generally to “make the math work.”

Mathis says advisors who are in the Merrill program currently are succeeding. Of current trainees, 63% are on target to hit their goals. Trainees have various goals they must achieve, including getting $10 million in net new assets a year. In Schwab’s independent franchise program, advisors also need to get $10 million in new assets a year. See: Are Schwab’s independent branches an opportunity or a threat to RIAs?.

“This is a process of continual improvement,” Mathis says. “We’re constantly measuring and changing. We have this clarity and new purpose today.”

Lead development 101

Mathis says that he feels his firm has set up overall standard guidelines for its training program. In the past, there would be centralized training in New York. Individual offices would then offer follow-up but it wasn’t consistent companywide and there weren’t clear guidelines and criteria for the training program.

“What would happen when they’d go to the field for more training in some of the local offices would provide great training and others didn’t. There was a lot of variability and that’s what we’ve changed in the last two years,” he says.

Mathis says now there are clear guidelines for training at all of Merrill’s offices. His firm wants trainees to truly be successful which means it will spend a great deal of time teaching advisors how to find leads through networking. The company won’t hand over leads to trainees, but they also don’t expect them to cold call.

“They’re taught how to go out and find clients and develop relationships,” he says. “That’s one of our core strategies. They’re taught different ways to host events and seminars to get lead development.” See: The art and science of how one RIA grew assets 125% by springing for several hundred steak dinners a year.

Selective hiring

Mathis says one of the key components to the program is they still want to carefully screen and be selective.

He says the firm has a number of criteria they’re seeking and they complete extensive background checks and also have regional committees interview trainees. The candidates also take behavioral tests. Merrill wanted to ensure that the hiring process was universal company-wide and that all job candidates go through the same screening.

“We want to find high achievers,” he says. “We want people who stand out among their peers. We believe with our hiring process we’re more selective acquirers of talent. We wanted more structure around the hiring process. “

Book and street smarts

The firm believes the mentoring program is so important that it has even tied compensation to reward advisors whose trainees do well and are successful.

“No one else has a salary program that runs this long. We made the investment to lengthen the time. It used to be eighteen months to two years. I think that’s standard in the industry. A lot will say they have a five year program, but they don’t pay salary,” Mathis says.