Money for Maturity

A shaky market environment in 2004 didn't stop the largest brokerage firms from fighting tooth-and-nail for the best reps, and, heading into 2005, similar rules apply. This year, firms are expected to get more creative in the courtship process, looking more for trainees with tangible business experience and continuing to compensate incoming reps for deferred money left on the table at their former

A shaky market environment in 2004 didn't stop the largest brokerage firms from fighting tooth-and-nail for the best reps, and, heading into 2005, similar rules apply.

This year, firms are expected to get more creative in the courtship process, looking more for trainees with tangible business experience and continuing to compensate incoming reps for deferred money left on the table at their former firms.

“The year 2004 was the year deferred compensation became a separate consideration from the rest of the deal, and firms had to face it head-on to get the best reps,” says Danny Sarch, president of Leitner Sarch Consulting in White Plains, N.Y.

For departing reps with large production and several years of contributions, deferred comp is a complex, but important matter. UBS has been the most aggressive and most innovative in addressing deferred dollars. It is now offering top advisors 100 percent of trailing 12-month production, divided between cash and UBS stock. Bigger producers get bonuses based on the percentage of assets brought over. UBS also forks over at least half of the deferred comp a rep might leave behind. Other firms started to follow suit in 2004, and will likely do even more in this regard in 2005.

“If the market stays strong, I think firms will increasingly look to make guys whole,” says Michael King, a New York-based recruiter.

According to recruiters, Merrill is offering 100 percent upfront, plus numerous bonuses, including deferred comp. Phil Sieg, head of business development at Merrill, declines to comment on compensation, but says the firm expects to maintain 5 percent growth per year, training three times as many reps as it poaches. The firm currently has about 14,000 reps — translating to annual net growth of about 700.

The profile of the typical trainee, both at Merrill and other firms, has changed. Hiring greenhorns to cold call is out; landing seasoned people with life experience is in.

“Ten years ago, the average age of the new broker was 27. Now it's between 35 and 37,” says Mark Willis, head of Smith Barney's national training center.

Recruiters say the competition is definitely heating up. “Trainee compensation is going up, because again, all the firms want the best candidates — seasoned CPAs and attorneys with spheres of influence — and these guys are playing the firms off one another,” says Sarch.

Overall, the market's slow improvement in the fourth quarter gave firms room to be more aggressive. “As long as that improvement continues, I don't see the packages coming down,” says Rick Peterson of Rick Peterson & Assoc. in Houston.

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