* Merrill Lynch to hire up to 2,500 trainees this year
* Firm says 80 pct of revenue from home-grown brokers
* Merrill sees 41 pct graduating to productive brokers
* UBS to hire 200 rookies, recruit up to 400 this year
By Joseph A. Giannone
NEW YORK, July 2 (Reuters) - Merrill Lynch is expanding efforts to hire unproven talent in the next six months, even as competitors pay eye-popping bonuses to poach star advisers.
Merrill's bet is that grooming its own brokers will deliver more bang for the buck and ultimately produce advisers who can eventually match and beat its rival's experienced advisers.
The largest U.S. brokerage by client balances says it will hire up to 2,500 advisers for its training program this year, exceeding the trainees at Morgan Stanley Smith Barney, Wells Fargo Advisors and UBS Wealth Management Americas combined.
Edward Jones and other firms have their own training programs, but Merrill, a unit of Bank of America Corp, is the only major wealth manager pursuing a home-grown strategy at such a large scale.
It's a major financial investment - Merrill puts the spending at nine figures - and there are risks, since six out of 10 rookies typically don't make the grade.
While recruiting star brokers from the competition makes headlines and immediately boosts assets, Merrill says training is the better way to replace a wave of retiring Baby Boomers and meet future market demand.
"We've taken a stand and established a strategy to build our firm from the ground up with the (trainee) program and focus on our core advisers," Thomas Fickinger, Merrill's head of recruiting and training, said in an interview.
Merrill has been training brokers since the 1940s. Roughly 85 percent of Merrill's Thundering Herd is home-grown, and these advisers generate about 80 percent of wealth management revenue.
The firm today has more than 4,000 trainees in a program that lasts 43 months, which means a fourth of its 16,175 brokers are new to the business.
The training push also comes as Merrill suffers losses of established, productive brokers to rivals: nearly 100 brokers overseeing $17 billion in client assets have left the firm this year, according to Reuters data.
Each Merrill broker generated on average an annualized $905,000 of revenue in the first quarter, up from $873,000 last year and $850,000 in 2010. Excluding trainees, Merrill said its advisers generated $1.1 million each last year, up 12 percent from $991,000 in 2010.
Brokerages engage in a mix of recruiting and training, though Merrill's rivals lately have cut training expenses while recruiting veterans who already have clients and assets. To lure star brokers, firms pay signing bonuses of up to three times their prior-year's production.
"These firms are not replacing an aging population," said Bill Willis, a former Merrill manager who runs a Los Angeles-based broker recruiting firm. "Most would rather recruit for outrageous sums."
Morgan Stanley wealth management boss Greg Fleming last fall told Reuters it reduced trainee hires by nearly a third to 1,250 as part of efforts to cut $400 million in costs. The firm expects to produce the same number of graduates by being more selective and integrating trainees into existing teams.
Morgan Stanley spokesman Jim Wiggins declined to comment on this year's plans.
Wells Fargo Advisors, a unit of Wells Fargo & Co, says it seeks to hire about 800 trainees a year, with an eye toward adding young advisers, women and minorities who can attract new clients. The brokerage, which bought A.G. Edwards in 2007, inherited its St. Louis training center and emphasis on home-grown brokers.
UBS, which has about 7,000 U.S. brokers, plans to hire 200 rookies and recruit up to 400 experienced advisers from rivals this year, similar numbers to last year.
Ninety percent of the new advisers are placed with existing teams and 75 percent develop successful practices, said Paul Santucci, a senior UBS executive who oversees hiring and recruiting.
The trainee program, which takes about four years to complete, is smaller than Merrill's because UBS doesn't intend to expand its adviser force much beyond its current force of about 7,000. Managers hire advisers and assign them to teams.
"We feel we do it more from a common sense perspective. You can have better conversations, better coaching," with small groups, Santucci said. "If you hire 2,000 people, like some firms do, I don't know how you can manage that."
Merrill made a number of changes last year to reduce trainee attrition and make those who graduate more successful.
Merrill's trainees are paired with mentors and learn the ropes in their home offices, rather than a national campus, said Dwight Mathis, head of Merrill's new adviser training. Its 11 regions and 120 branch complexes each have training executives.
It casts a wide net - there were more than 36,000 applicants this year - seeking people who were successful in other careers. The average trainee is 36 years old. Once they are hired, Merrill uses classroom, web and one-on-one training to help rookies learn the ropes: attracting customers, sales skills, investments and financial planning.
Business practices developed by successful teams are taught across the company. After noting that advisers who are engaged in their community often had the fastest growth, Merrill created a program that rewards trainees who get involved.
Merrill also extended the training program to 43 months, rather than 18 months, giving trainees more runway to get up to speed. Previously the firm lost dozens of trainees the day they graduated and their salaries were cut off.
As soon as they are licensed, trainees begin soliciting customers and generating revenue. They must clear rising revenue and asset hurdles each quarter. Trainees on average are profitable at the end of the third year, Merrill said.
Merrill estimates 41 percent of trainees are expected to graduate, up from an historical 30 percent. After three years, trainees are expected to have clients with $30 million in assets and take home about $100,000 a year in commissions and fees.
Successful graduates, Merrill says, generate revenue that more than makes up for trainees who wash out of the program.
"A lot of capital is invested, but it has good returns," Fickinger said. "If you were on the outside and could invest in a program like this, you would."