It's a new day for many bank investment consultants. After a grueling financial collapse, two years of grinding recession, and hundreds of bank failures and mergers, advisors in general are back in the pink, making more money, gathering more assets under management and generally feeling upbeat about their prospects.
To get a picture of how the universe has changed, we conducted a survey of our readers and compared their experience in 2010 with what they said about business in 2009.
Among the highlights of our findings: Advisors last year sold a whole lot more mutual funds, ETFs and other equity-linked products, while continuing to increase annuity sales. A trend toward more fee-based income and away from commissions continued; and many more advisors were making the high end of their grid. Recruiter calls were way up as more of them offered signing bonuses.
In 2009, by contrast BIC's annual compensation survey of financial advisors in banks and credit unions indicated clear signs of distress. Only 18% of respondents said they were selling more ETFs, equities and mutual funds, for example—an indication that customers were still afraid of stocks. And nearly half reported that they had earned less than in 2008.
A year later, nearly half of BIC's survey respondents (48%) say they are selling more mutual funds, ETFs and equities, and only 19% say they earned less in 2010 than in 2009. "Payouts and the total income of advisors have been rising, and that's 100% because of the improvement in the market," says Rick Rummage, founder and CEO of The Rummage Group, a recruiting firm. "Clients are feeling better, reps are feeling and acting more optimistic."
PRODUCTION AND GRIDS
Sixty-one percent of advisors said they earned more in 2010 than in 2009, compared with 34% a year earlier. Average production reported by our respondents this year was $400,000. That level of production is higher than the 2010 industry average of $327,216, (or $228,656 if trail commissions and managed money fees were excluded) according to Kehrer-Limra.
The number of respondents to BIC's survey who reported crossing the $1 million production line also rose. Last year, 5% of the advisors who reported their production figures said they had met or surpassed that mark, with one advisor reporting $5 million in production and another, $3.2 million. That compares with 3.6% in 2009, when one rep reported producing $3 million.
"I don't have a hard number on production numbers," says Tom Hubert, regional program manager Northwest for CUSO Financial Services, which runs four managed programs for credit unions, "but in my territory, they're up an average of 15% to 20% per advisor." Dan Arnold, managing director and division president of Institution Services at LPL agrees. "Among our people, production is up strongly," he says. "I'd say by good double digits." This all represents a "return to normalcy," concludes Hubert.
Sean Casey, executive vice president for business development at Primevest also says production has risen everywhere, primarily because of the improvement in the market. At his TPM's top 20 financial institutions, production was up 19.6% in 2010. Beyond that, he says, more advisors are moving up on the grid and consequently getting better payouts.
In our survey, 29% of respondents said that 20% or more of the advisors at their firm had made the high end of the grid in 2010, with another 25% saying that 10% had made it. That compares slightly better with 27% for the 20% group in 2009, but a lot better for the 10% group, which was only 18% in the previous year. Where only 19% of respondents this year reported that nobody had made the high end of the grid at their firm, last year that figure was a sorrier 24%.
The basic grid doesn't appear to have changed much at most institutions, ranging from about 20% to 40% at most of them. That makes sense, says John Houston, senior vice president and managing director of the Financial Institutions Division of Raymond James. "But if the market continues to recover, you may start to see some changes. There is always a gradual increase in grid levels. We advise our client banks to establish a pretty competitive grid schedule vis-à-vis the wirehouses for retention purposes. Of course, the bank grids can be lower because of their relationship-rich environment, but not substantially lower."
Between having up to 15% of advisors leave the business during the financial crisis, and banks expanding their investment programs, the hiring and retention environment has clearly become more favorable to advisors, especially at the high end. "There's a war to get talent," says Jan Krug, a Raymond James program manager at Tri Counties Bank in central California.
Our survey supports this view: Thirty-four percent of advisors, compared with 28% the year before, reported that the number of calls from recruiters had gone up. Only 11% reported a drop in such calls, compared with 19% in 2009. A larger number of advisors, 32% versus 28% in 2009, said those recruiters were offering sign-on bonuses.
"In the near-term, the market for financial advisors has heated up because banks are expanding their investment programs," says Kevin Mummau, executive vice president of program development at TPM Sorrento Pacific and CUSO Financial Services. This is due in part to the large baby boom population nearing or entering retirement age, and partly, because "the rep population itself is aging," he says. "There is not a lot of new blood coming into the field over the past few years as the wirehouses, which were the traditional training ground for new reps, have temporarily dropped their training programs."
Lance Dunn is a financial advisor who switched to Tri Counties Bank from its competitor in the Fresno/Bakersfield area, Bank of the West. He clearly felt confident leaving 1,500 clients and $100 million in assets under management behind when he was lured away by an "attractive transition package," including a signing bonus, which he said would "keep me whole" until he could get up and running at his new post. "I did $1 million in production last year at Bank of the West," he says, "and I expect to be back up to $750,000 here in 15 months, and I'll ramp it up from there."
Dunn was in a strong bargaining position because he wasn't looking to move, he says and was able to negotiate a better payout grid for the next two years, as well as a better deal for his assistant, who jumped with him.
Krug, who recruited Dunn, agrees that the bank made him a very generous offer. "Where there's an opportunity to get someone of that caliber, we jump on it," she says. Tri Counties, she explains, just launched an investment operation in the Fresno/Bakersfield region, where it has been expanding from its home turf in the Northern California.
SQUEEZING THE LOW END
But it isn't glory days all over the bank channel, says recruiter Paul Werlin, president of Human Capital Resources in St. Petersburg, Fla. The market is competitive for the better producers, with signing bonuses "reaching the 25% to 30% range," but banks aren't being generous across the board.
For those who stay put, Werlin says banks are tinkering with their grids to make them more generous to top producers, while squeezing the bottom end. "Low producers are seeing their shares go down," he says. That's particularly true at the megabanks, says recruiter Andy Tasnady of Tasnady & Associates in New York. "The big banks don't tolerate advisors doing less than $250,000 a year. You get a very punitive payout rate—maybe 20%—and unless you team up with some senior person, you'll probably eventually get fired."
Ten percent of respondents, compared with 9% the prior year, report that their banks were still taking steps to help out lower producers. These steps ranged from making more referrals to boosting base salaries and offering forgivable loans. We did receive a few caustic answers to the question of what their banks did to help. "They micromanaged the hell out of us," one said; another said the bank's idea of helping was to call on low producers "to sell more."
Money wasn't all that was on our advisors' minds. The amount of bank-based advisors reporting that the most significant issue for them in considering a new position was job satisfaction jumped to 36%, from just 30% a year ago. This may be an indication that people are more confident about making a living and so are thinking about other aspects of their work lives.
Dropping way down (to 13% from 21%) in importance last year from 2009 were concerns for client security as a factor to weigh in choosing a new job. This no doubt reflects greater stability in the banking industry and the markets in general.
Another indication of growing advisor confidence: Asked where they would go if they were to leave their current job, 42% were ready to "go independent" (up from 40% last year), while only 44% said they'd "join another bank" (down from 49% in 2009). At the very least this shows that people seem more willing to imagine themselves forgoing ready referrals and the security of an institutional infrastructure.
In fact, recruiters and program managers alike say the vast majority of people being hired as advisors at banks continue to come from other banks. "When we recruit for banks, typically we get people from another bank," says LPL's Arnold. "A few years ago, the number coming from wirehouses was greater." That's natural given the turmoil caused by crisis-created mergers. "When people leave, mostly they are leaving the business or they go to another bank or, in a few instances, they go independent. They don't go to the wirehouses," he adds.
When asked whether bank advisors were happy where they are, 51% (about the same as 2009) reported having "no intention of leaving," and 54% said that if they did move, it would be to another bank—compared with 57% in 2009.
BIC's survey also finds that the trend toward more fee income continues to strengthen. Those reporting that fee income represented 30% or more of their total income rose to 34%, from 27% last year. "Fee-based production is the focus," confirms SPF/CFS' Mummau. "All banks are trying to build their fee business. I've seen banks paying more in the first year, or putting fee-based income at the top of the grid—giving extra bonuses for that income. I may do that too. We already give double credit toward making top producer for fee-based production." The number of Sorrento and CUSO advisors who are doing at least some fee-based business has risen to 80%, up from less than 15% three years ago, he reports.
"The good news is that banks are pushing their wealth business," says Wayne Cutler, managing director at New York City consultant Novantas.
A PUSH TO INTEGRATE
One of the most dramatic changes in our survey this year concerned cross-selling was one of the most dramatic changes from year to year. Incentives appear to have gained much more traction in the financial institutions. The share of BIC survey respondents saying cross-sell incentives made a "significant difference" in their income in 2010 was 12%, up from 8% in 2009. Meanwhile, 27% said that cross-selling provided "a nice bump" in income compared with only 18% a year earlier. And 43% said cross-selling had also boosted production through referrals, compared with only 30% a year ago.
"The amount of cross-selling varies widely from institution to institution," says Primevest's Casey. "When we do interviews with executives at financial institutions, they really promote the idea, though. We push it because it improves the partnership. Whether it drives compensation is less important. It's about the partnership, not about making money from it."
Recruiter Werlin says that at least until recently, banks hadn't been emphasizing cross-sell because since the financial crisis, they "haven't been making loans." If he's right, incentives may be fostering ties to other divisions including commercial and private banking.
After all the turmoil in this industry, it does seem as if things have taken a large turn for the better for bank advisors. With the markets perking along, there's a lot less client hand-holding to do, although clients still may need to be coaxed back into equities. And where investors are regaining some of their mojo, the work is more interesting.