Think recruiting bank advisers can't get any harder? Indeed it can and will, says Peter Bielan, a principal of research firm Kehrer Bielan Research & Consulting.
The Labor Department's new fiduciary rule forces the industry to accelerate its shift to an advisory business model, a change that makes the profession even less attractive to potential new recruits, Bielan told hundreds of industry executives during a conference call.
Bielan noted that fiduciary advisers take longer to build a book of business than traditional commission-based advisers, denying new recruits the instant gratification some might need to persevere in the industry.
"It takes longer to get to income levels and success metrics that were once out there in business," he said. "It doesn't seem as attractive on the surface as it once was."
Newcomers, he added, also "have a lot of hoops to jump through" and face personal liability.
Given the diminishing appeal of the profession, firms need to double down on recruiting. "It's all the more important that firms focus on the recruiting process because there may not be as many candidates proactively looking to come into this space," Bielan said.
Financial institutions should also give new advisers a longer "ramp-up period" as well as more generous transition packages. "The 12-month guarantee or 18-month guarantee we believe in most cases will not be nearly long enough to transition advisers in," Bielan said. "Changes will be needed to be made to those to effectively recruit and keep advisers long enough to get them ramped up to where they can produce and earn and be successful with your firm."
The challenge doesn't bode well for an industry that's been hard-pressed to attract new talent. Net new advisers have been stagnant for a long time, Bielan pointed out.
In fact, bank-owned broker-dealers saw their adviser headcount fall 0.5% in 2015, according to the latest Kehrer Bielan data gathered from institutions. Banks and credit unions that work with third-party broker-dealers saw a modest uptick of just 2.8%.
As financial institutions begin to comply with the fiduciary rule, headcount will come under increasing pressure and is likely to shrink, at least in the short-term, Bielan said.
He predicted a "shakeout" in the workforce with the lower producers losing their jobs. Advisers in the bottom 20% to 25% of the salesforce will be in an especially "risky spot," particularly those with a high percentage of business in commission products, he said.
As difficult as it is, Bielan urged banks and credit unions to start adding advisers now before the market gets even tighter. "The more effort we put in on adding and having a higher base to start with, the better we'll be able to weather any losses that do come from this change," he said.