Janney Raises Bar For Its Financial Advisors

(Dow Jones) Janney Montgomery Scott has benefited from Wall Street's woes.

Its financial advisor headcount has remained near 900 in recent years, but the fees and commissions those brokers generate has increased as new, productive hires replace less productive incumbents, according to Jerry Lombard, president of the financial service firm's private client group.

"Our story is one about increasing the quality of our financial consultants over the last several years, rather than increasing simply the headcount," Lombard said.

Philadelphia-based Janney is a subsidiary of the Penn Mutual Life Insurance Co. Its private client group manages $52 billion for clients and accounts for 80% of Janney's revenue, Lombard said. Janney also has a capital markets group.

The private client group hired 145 financial advisors in 2008 and 2009, most of whom came from large Wall Street broker-dealers, Lombard said. Their average annual production was about $650,000, twice that of Janney's existing broker base.

Many of them were "regional firm refugees" whose employers had been acquired at some point by large institutions and who wanted to return to a smaller organization.

With this large pool of potential hires, Janney early last year raised its criteria for financial advisor recruits to $500,000 in annual fees and commissions and $60 million in assets under management. That's above the group's average production now, which is approaching $450,000 in fees and commissions, Lombard said.

The financial crisis thwarted plans Janney had announced in 2007 to raise broker production to $700,000 by 2011. It backed off that specific goal but plans to continue nudging broker production higher.

"The average production of any organization is a direct result of the quantity and quality of advice being delivered," Lombard said.

Financial advisors generating less than $200,000 annually in fees and commissions are in the so-called penalty box, receiving a low 20% payout. Janney recently raised that threshold from $150,000, where it had been for the last several years and expects gradually to move that minimum higher, Lombard said.

More recently, the outflow of Wall Street brokers has slowed considerably. That appears to be the result of brokers adapting to life at newly combined organizations and being tethered to their employers by retention bonuses that oblige them to stay for a certain number of years. Janney offers a recruiting package but, at 100% to 130% of the past 12 months' production, it's far less than what Wall Street brokerages offer.

Janney hires a small number of brokers new to the business each year but focuses mainly on experienced financial advisors. Acquiring brokers one by one, rather than buying another business, will remain Janney's focus, Lombard said. Also, it doesn't plan to expand the private client business beyond its current territory, which includes offices along the East Coast and into Ohio.

While Janney is increasing standards for its brokers, it continues to target so-called mass affluent investors, whom Lombard said are often overlooked by larger organizations. It targets clients with $500,000 to $5 million to invest.

"A lot of the new clients we are bringing in have felt abandoned by their firm," Lombard said. "To us, it's a very lucrative relationship."

Growth in Janney's capital markets business, including more research and banking activity, also benefits the firm's financial advisors and clients, Lombard said.