Status: Burning mid-night oil....daily
Joined: 07 Nov 2008
Schools: Yale SOM 2011 Alum, Kellogg, Booth, Tuck
WE 1: IB - Restructuring & Distressed M&A
 , given: 548
I-Bank Training Programs Cut.... [#permalink]
01 Dec 2008, 08:57
This post received
This article was recently on WSJ. Apparently companies are cutting even training programs. Few years ago, many HR reps of financial services companies (while being interviewed by WSJ) promised that they won’t cut entry level training programs. Back in post 9-11 world, many i-banks cut these programs and as a result, suffered from talent shortage about 5 years later (when class of 2001 trainees would have made managing directors at this point)….
For this reason, they assured WSJ that training programs will survive regardless of other job cuts. Now that fin services are actually cutting training programs, should we all rethink our MBA applications if our ONLY goal for MBA was to work in fin service?
As Firms Retrench, Training Gets the Ax
NEW YORK -- Training programs for brokers are falling victim to the corporate budget ax, cutting off a source of new talent for financial firms.
Cost-cutting has been a prominent theme across many industries during the serious economic slump, and training often tops the list of areas to be pared back.
The shrinking pipeline for bringing in new brokers means more firms have to resort to poaching experienced brokers from rivals rather than developing their own staff.
UBS AG halted rookie hiring for the year in April, stopping at 250 trainees instead of the customary 800 trainees. Morgan Stanley, Citigroup Inc.'s Smith Barney and other firms also have cut back this year in hiring brokers-in-training, recruiters say.
Merrill Lynch & Co. revised its initiative in March, cutting training classes to 12 a year from 52 a year and adding salary tiers. But the firm didn't shrink the number of trainees going through the program. The new program is more cost-efficient, but a Merrill executive says that wasn't the reason for the change.
A UBS spokeswoman says, "We decided to focus our efforts this year on retention of our current adviser base and recruiting experienced financial advisers."
Morgan Stanley and Smith Barney declined to comment.
This restricted influx into the industry "is a severe problem," says Bob Ellis, a brokerage analyst at Celent, a financial-services consultant. "This is an aging force that needs to be replenished."
More than half of the advisers in the U.S. are more than 50 years old, and only 3% are under 30, according to a Cerrulli Associates report published this year. As those advisers begin to retire, fewer new ones will be entering the field.
"No one wants to build from the ground up -- they just want to buy brokers who already have books" of business, says Scott Smith, an analyst with Cerulli. "But, eventually, that pool is going to run dry,"
The number of advisers in the U.S. dropped to 245,831 from 256,569 between 2005 and year-end 2007, according to Cerulli.
"It's a shrinking business, and we are feeling the shrinkage," says Mickey Wasserman of recruiting firm Michael Wasserman & Associates. "There are fewer people managing more of the country's wealth."
Roughly one of 10 trainees becomes a profitable broker, and that takes anywhere from five to 10 years, analysts say. This makes training a new broker much more expensive than hiring an experienced broker.
When firms lure a veteran broker from another firm, they are paying for a record of success and an established book of client assets.
"It makes more sense in the short term, but firms need to be thinking about the long term," Mr. Smith says.
The market downturn also is causing more rookie brokers, who were able to get signed on in the past year, to then drop out of the industry.
The decline in brokers could result in investors with less than $1 million in investable assets being forced to resort to self-service investing online, saving the advisers for only the richest clients.
"This could force self-service on clients sooner," Mr. Ellis says. "Ten years from now, unless you have $5 million or more to invest, you'll be on your own."
One potential solution is for firms to contract outside training companies to come in and teach a few classes of new brokers when the firms have the money for training.
"This is a cyclical process. Firms can scale up when times are good and scale back when they're not," Mr. Ellis says. But, he adds, the firms that were most successful following the previous recession were those that continued to invest in training even when budgets were tight.
When the recession subsides, there will be an influx of client assets, and if the firms don't have rookie advisers they mightn't have people to take on those clients.
Another alternative, which some firms already are trying, is placing trainees on established teams as junior advisers. This gives them a chance to get client referrals from the veteran advisers as opposed to the traditional cold-calling approach.