Ultimate Trade School? Trainees, Seeing Promising Jobs, Try Broker Boot Camps
By Rebecca Buckman, The Wall Street Journal
September 9, 1999
The Wall Street Journal
Page C1
(Copyright ©1999, Dow Jones & Company, Inc.)
HARTFORD, Conn. — In an age when investors can buy and sell shares online for $10 a pop with the click of a computer mouse, who would want to begin a career as a stockbroker?
Surprisingly, perhaps, quite a few people — like Michael D. Smith, one of 100 eager trainees attending Salomon Smith Barney Inc.’s boot camp here recently for stockbrokers-to-be.
A 41-year-old from Memphis, Tenn., Mr. Smith realizes that signing up customers who could pay several hundred dollars a trade might not be easy. But he figures it can’t be much harder, and could pay much more, than the job he just quit — as a carpet salesman for Mohawk Industries Inc.
Like today’s brokerage business, “the carpet industry is a commodity business,” reasons Mr. Smith. “Eighty percent of all [carpet] that is made is beige. The fuzzy side always goes up.” One key to success, he explains, was customer service.
And, of course, a good sales pitch.
So it is that a new class of recruits has been sent here to absorb three weeks of Finance 101, including the fine art of cold-calling. Indeed, for all the changes sweeping Wall Street in the 1990s, Smith Barney’s broker school, like training programs at some other Wall Street houses, has many similarities with the 1980s. Recruits spend time studying scripts in a 398-page training book, with sections on the “Ideal Sales Presentation,” “Getting Appointments” and “Handling Indifference.” They learn tricks for helping to get past suspicious secretaries, and how to parry would-be customers who say they prefer using a discount broker (”You sound like me. You don’t want to pay for something unless it is really worth it,” the training manual suggests as a response).
Despite the intensive training, only about half the recruits — who have already spent four months in a branch office — will survive three years at Smith Barney, a unit of Citigroup Inc., if past form holds true. If anything, new brokers could have a more difficult time, particularly as the industry is being rocked by the Internet, new competitors such as banks, and changes to the traditional compensation structure.
“It’s a very tough racket,” says Rick Peterson, who runs a broker headhunting firm in Houston. Brokerage firms have to work harder these days to find qualified candidates, he adds, thanks to a tight labor market and a lack of “cachet” to the business. One sign of that: The average age of brokers that Smith Barney recruits is 37, compared with 27 a decade ago.
“People are going to have to hustle more,” adds Richard Strauss, a brokerage analyst at Goldman Sachs Group. “The economics of the business are definitely changing.” The average industry “payout,” or percentage of commissions and fees that a broker gets as income, has declined steadily over the past four years, according to the Securities Industry Association, a Wall Street trade group. Last year, payout declined to 37.1%, down from nearly 42% in 1994, and brokers’ median income fell to $116,917, from an all-time peak of $119,010 in 1997.
Incomes could come under even more pressure. One of the industry’s bellwether competitors, Merrill Lynch & Co., is gearing up to offer a discount stock-trading service later this year that the firm has said could cut some brokers’ pay by as much as 20%. In launching the program, Merrill acknowledged it was losing some business to lower-priced firms such as Charles Schwab Corp.
Still, many firms continue to add brokers. Smith Barney expects to cycle more than 850 people through its Hartford facility this year, augmenting a broker base of about 11,000. And Merrill predicts that its ranks of brokers should increase to 17,000 to 20,000 in the next five years, from about 15,000 now.
“Until somebody puts a halt to the conventional business system, hiring more brokers is how you make more money,” explains Peter Davis, a partner and financial-services expert at the Cambridge Group, a consulting firm in New York.
But some younger people don’t find the profession attractive anymore. “If you listen too much to the TV or newspapers, you might say, ‘The broker is a dinosaur,’ ” notes Joe Baxter, director of training at regional broker IJL Wachovia, part of Wachovia Corp. Mr. Baxter, however, believes such media messages are off base, and brokers have a bright future.
Despite the squeeze on broker income, many would-be brokers think they still can make more money than in their old jobs. Mr. Smith, the former carpet salesman, thinks he can pull down six figures a year after a few years on the job if he’s successful, and possibly as much as $150,000 or $200,000 after that. At Smith Barney’s broker school, potential salary is used as an incentive. Training leaders tell the recruits they will have to work 12-hour days and endure repeated rejection to succeed. But in the end, says Mark Willis, the firm’s director of training, “you can make more money than you ever dreamt of.”
To help its brokers survive in this tougher new environment, Smith Barney says it has changed the firm’s strategy and its training program to focus on gathering customer assets and providing financial planning, instead of selling hot stocks. The firm encourages brokers to try new sales techniques such as holding seminars for new clients, for instance. Officials insist that Internet brokers serve a different, less-wealthy customer base than theirs, and that an expected increase in well-to-do Americans will play to the strengths of traditional, “full-service” brokers.
Like many firms nowadays, Smith Barney doesn’t call its stock-brokers “brokers” anymore, preferring instead to call them “financial consultants,” or FCs.
“Not only is our business growing, but the amount of assets per FC and production per FC continues to grow pretty significantly,” says Doug Van Scoy, deputy director of Smith Barney’s private-client group. The firm’s training course is being changed to emphasize “how to solve financial problems. It’s a lot more oriented toward servicing the client than finding the client.”
Still, new brokers have to find clients somewhere — and at broker school, they get lots of instruction in old-fashioned coldcalling. The firm’s training manual hints that the process won’t be easy. “The people you phone or meet in person probably don’t trust you,” it warns. “Frankly, they typically would just as soon have you go away and leave them alone.”
So, recruits still work the phones for hours, sifting through old lists of “leads” and enduring endless hangups.
Larry Kurschner, an energetic 25-year-old from San Diego, said he’s been called all kinds of names. Taking a break to wipe his brow with a paper napkin, he confides, “I don’t take it personally. If they hang up on me, it’s just not the right time.”
Older trainees, who often already have sales experience and a network of business associates, sometimes fare better, Smith Barney officials say. Mercedes Nugent, a new broker in her late 40s, mentions her family background and experience working for a nonprofit agency in her hometown of Greenwich, Conn., when she calls prospects in the area. (Ms. Nugent also has worked as the assistant treasurer for Avon Products Inc.)
Late one recent Thursday afternoon, she scored: An investor agreed to meet with her to discuss his $1.5 million portfolio, particularly the status of his international mutual funds. Still, the overall experience can be humbling: The day before, Ms. Nugent made 150 calls, managing to get past answering machines and speak to just 40 people, she says. Of those, she could persuade just 25 to stay on the phone, and that group yielded five “prospects,” or people she will call again.
Ironically, despite all the attention paid to online trading by nervous Wall Street executives, the Internet gets scant notice at the training sessions. What about Merrill’s recently announced plans to slash commissions to as low as $29.95, and integrate Internet trading into all aspects of its business?
On the first day of class, no one mentions that. A Smith Barney employee does demonstrate the firm’s customer Web site, full of stock research and charts, in a session on the second-to-last day of the program, and encourages brokers to tell their clients about it. The speaker says Smith Barney will offer limited online trading later this year, though company officials have said they have no plans to go the discount route.
Not all the trainees have even heard about Merrill’s precedent-setting plans. Former Radio Shack store manager and new broker Brian Brinker, of Springfield, Mo., admits he “hasn’t followed” the developments at the big Wall Street firm. Mr. Brinker says he gave up Radio Shack for Wall Street partly because he didn’t want to work nights anymore.
Others are more philosophical. Mark Palmerino, of Worcester, Mass., reasons: “There are people who wash their own cars, but there are still a lot of car washes out there.”