Merrill Lynch, considered the world's largest employer of brokers, is now undergoing a change on what it is teaching its trainees. Instead of instructing them on how to make cold calls, they are putting those new employees in classrooms that emphasize statistical analysis, financial planning, and wealth management. Merrill’s new training program specifically covers the Monte Carlo analysis and they also have psychology classes such as behavioral finance.

What’s happening at Merrill is indicative of what’s happening all over Wall Street that is in the throes of turning those typical brokers looking for commissions into financial advisors. In fact, Merrill is even urging their people to seek out and obtain professional certifications such as the CFP, or certified financial planner.

Over at Smith Barney, the newcomers must know the ways to leverage the firm's own expertise, whether it be in art advisory or philanthropic services.
Executives at both Merrill and Smith point out that both life and professional experience will count as much in their recruitment system as a person’s craving to make it big. Ah, the age of specialization!

Actually, Merrill says that they teach their trainees financial planning from the beginning including and how to provide one-stop-financial shopping, whether it is college savings, retirement plans, trusts, or insurance.
 
The U.S. presently has 78 million Baby Boomers, the first of whom turned 60 this year. Starting in another 18 months, these boomers will begin retiring at a rate of around four million a year. That will set trillions of dollars of assets in motion. The bottom line is that here are rollover opportunities to capture.

Also, there will be a need for more sophistication. We all know that boosting fee-based income, rather than traditional trading commissions, has become a preoccupation at brokerages because fees create steady revenue streams rather than incomes that are linked to the trading floor. Firms with larger proportions of recurring revenues have higher stock-market values, not to mention happier shareholders. At Smith, recruits are trained in how to create such fee-based accounts.

In fact, the company says that its revenues from fee-based accounts at the firm rose by 29 percent to $1.24 billion in the second quarter of this year. Of course, that represents only a little over 25 percent of the total client assets. Translated: it’s imperative to get those seasoned brokers to go across the water. Smith claims that doing so presents quite a challenge, because brokers may see their earnings drop during the transition.

According to the latest data, almost 60 percent of the more than 52,000 CFP holders in the U.S. work for brokerages and other financial services firms. Kaplan Financial, one of the largest training providers to the American financial services industry, says enrollments in its CFP training program are up 30 percent this year.  Some financial planners argue that a recent proposal from the CFP board would allow CFP-holding brokers to opt for a less stringent standard. The transformation of brokers into financial advisors who offer similar services to investment advisors has put differing standards of customer care center stage. Investment advisors, mainly independent financial planners who help clients manage their money for a fee, are registered with the SEC and owe clients a variety of fiduciary responsibilities.

Though brokerages have moved into fee-based advising, by contrast, their brokers are registered with the NASD and are typically held to a lower standard, which means they are only required to offer suitable investments, though not necessarily the best, for a client based on the client's age, needs, and risk tolerance. Indeed, the Financial Planning Association has sued the SEC over its broker-dealer rule, which protects brokers from a regulation as investment advisors. In the meantime, the SEC says it is commissioning a major study comparing how the different regulatory systems affect investors.

Register or login for access to this item and much more

All Accounting Today content is archived after seven days.

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access