It's a hirer's market out there, but brokerage firms have not stopped recruiting. In fact, although it is quieter than usual, many firms are still willing to pony up big bucks in hopes of attracting top-shelf talent.
But today's compensation packages are focused on back-loaded bonuses. Such offers aim for the proverbial win-win solution: The firm lands talent without having to lay out money it can't spare, and the broker gets a shot at a compensation package he might never see in his current position. Lawyers and other employment experts say that while brokers do love the up-front cash, it's wiser to take a back-end loaded payout plan — that way, if production sags, the firm will have less incentive to cut him loose and come looking for the upfront forgivable loan that the broker treated like a free-and-clear bonus.
The dangling-carrot packages eliminate the “I-can't-move-now” objection from brokers, says Rick Peterson, a Houston-based recruiter. “It gives them the option to say they're going to have a better year a year from now or two years from now. If a guy is saying he's not sure to that question, you probably don't want him anyway.”
Many brokerages are trying variations of a UBS PaineWebber model in which a 75 percent bonus is paid upfront, based on a broker's trailing-12 months of production. That's followed by bonuses of 15 percent and 10 percent based on production in the years following. Recruiters say UBS, which had 8,600 financial advisors as of the third quarter 2002, remains one of the most aggressive recruiters on the Street. (It declined to comment on its recruiting practices.) UBS is offering “the best deal on the Street, although others are willing to match it,” says one recruiter, who requested that his name not be printed.
Morgan Stanley, after scaling back hiring in 2002 to approximately 100 new brokers, is offering packages that are conservative on the front end, paying 50 percent of trailing production. However, according to sources at the firm, another bonus from 30 to 50 percent is possible.
After 14 months, the best 12 months are used to calibrate the broker's bonus. The firm did not return a message seeking comment. “I like that deal,” says one source. “There's firm risk, there's broker risk, and there's shared risk.”
Merrill Lynch is getting more aggressive in its hiring practices as well (after letting its total number of financial advisors gradually decrease to about 14,500 from around 20,000 two years ago). The firm's deals reportedly include a combination of up-front money, deferred compensation and stock, and several sources said the firm was looking to hire 400 to 500 new advisors in the early part of the year. One outward sign of its commitment to adding brokers: Merrill has moved a recruiting specialist, Jack Mounts, to a more prominent role in recruiting in New York.
Prudential Securities also is signaling a willingness to hire, though it is somewhat hamstrung by rumors of a joint venture with Wachovia Securities.
More Bouncing Around
Overall, recruiters believe 2003 will see more hopping around by brokers, having somewhat emerged from hibernation during the last couple terrible years in the market and the industry. With Merrill Lynch and others showing a willingness to expand — rather than just leaving desks empty — the expectation is that good brokers will be able to field more offers.
In addition to the large wirehouses, banks remain active recruiters, although their deals are generally not considered as aggressive as the traditional brokerage firms. However, Wachovia, Bank of America, SunTrust, Wells Fargo and Bank One are all expected to continue to recruit brokers to try to win over assets that their customers have been sending to the brokerage houses.
One reason for the expected rebound is a slightly more positive environment, one that New York-based recruiter Mark Elzweig calls “moderate misery.” Until the fourth quarter of 2002, Elzweig says, the misery level in the marketplace was so high it had the effect of scaring brokers from potentially jumping firms, for fear of losing clients, among other reasons. With fortunes improved slightly, more activity should be expected. “Brokers were in a state of severe misery,” he says. “Now they're experiencing moderate misery, and that's when brokers make a change.”
Recruiters say the favored type of producer that firms are going after are folks with a low ratio of production-to-assets, that is, someone who produces a lot, but not because they're turning over their entire book with trades all the time. Experienced brokers are still the most wanted commodities, as firms are looking for producers with more than five years of experience and a good chunk of their assets in some sort of fee-based arrangement.