One unforeseen consequence of the credit crisis has been the emergence of a higher quality and more competitive graduate market, creating opportunities for wealth management businesses looking to invest in fresh talent for the future.
However, as wealth creation stalls and firms seek an immediate boost to assets, has there been a tendency towards hiring experienced managers that can bring a client bank with them?
As the civil service, banks and other professional service firms reduce their graduate intake, we asked if firms are grasping the opportunity to snap up quality graduates and what their balance is between hiring experienced staff versus investing in trainees for the future.
Charles Stanley is one company that advocates both options, arguing they are essential for future growth and not necessarily mutually exclusive.
Che Stoddart, a senior recruitment adviser at the national wealth manager, says it is always keen to take aon teams of brokers with their own books of business, and points to the short-term benefits but also the contribution to long-term growth.
However, Charles Stanley balances this strategy with its trainee scheme, which the firm made more formal around five years ago, with dedicated posts around different parts of the business, including research, compliance and operations.
‘We have a fairly even split, as we are interested in both. Obviously with trainees it is a long-term investment and you have to be patient, whereas if you bring someone in with [a book of] business, you start to see results pretty quickly,’ Stoddart said.
The company takes in around three to five graduates each year with a view to them eventually becoming discretionary managers. It favours those that have a financial degree and solid extracurricular experience that suggests a strong interest in the industry.
‘This is about new ideas and attracting a new generation of clients,’ Stoddart added.
Client banks disappoint
However, as one headhunter estimates that investment managers historically only bring over 20% of their client bank, the short-term expected benefits of hiring in experience can disappoint.
Mike Levy, a director at benchmarking group ComPeer, explained: ‘Over the past few years, one of the key issues in the wealth management sector has been how to find good new blood, so there is always an argument for good trainee schemes. But what happens with a lot of firms is if they can poach, they will take people with assets,’ he said. ‘However, the percentage of assets that people bring over is often not what they thought. They often think the relationships are stronger than they are, so the percentage they end up with is lower.’
It could be argued that the main issue is a lack of investment in organic growth. ComPeer estimates that marketing expenditure across the wealth management sector stands at only about 1.8% of turnover. This contrast with other firms that target high net worth investors – such as luxury companies – that spend between 5% and 10% of turnover.
Levy’s sentiments are echoed by Nick Holmes, managing director of Brooks Macdonald Asset Management. He supports a balance between having an established trainee scheme and bringing in experienced hires to fill certain gaps.
Nonetheless, he agrees there is a tendency for incoming managers to overestimate the strength of their relationships with clients, alongside ‘the fight that other firms are willing to put up’ to keep clients.
‘A lot of companies have non-compete clauses, so if the manager can’t act for you for six months, it gives the firm a long time to see the client,’ said Holmes.
While Brooks keeps an eye out for teams that can fit culturally, it prefers to cherry-pick individuals, particularly where they are looking to bring in a certain skill set.
The firm’s graduate scheme launched in 1996, with Holmes starting out as its first trainee, and has now evolved into a formal programme, with around five taken on each year.
Trainees work across different areas, including stints in the back office, as the firm feels it is important for them to understand all aspects of the business and ensures they have a knowledge of the history of the industry.
‘Forty years ago people were just left making tea and wandering around. You have got to be much more structured now. We see trainees as our future growth,’ said Holmes. ‘It is an opportunity to mould them into the individuals they want to be in their personal life and professional career, therefore it is incumbent on us to make them feel they have made the right choice.
‘If they want to run money for [a house like] Fidelity, they should go somewhere else. This is private client land, therefore they need the personal skills, not just an ability to number crunch and read balance sheets,’ he added.
Graduate trainees vs experienced hires – in numbers
Average salaries according to ComPeer’s latest remuneration survey:
• Portfolio manager (running £100 million - £160 million) = £143,670
• Portfolio manager (running £40 million - £100 million) = £85,736
• Portfolio manager (running less than £40 million) = £54,328
• Graduate trainee = £32,000