WealthManagement Magazine

Some Merrill, Prudential Managers Push "Velocity" Targets

Brokers are finding themselves in the middle of a debate over how return on assets defines success. Should the veteran broker with more than $200 million in assets that yield less than 75 basis points in yearly production be prodded to work harder? Or is that broker a model of wise asset management and client service?Some branch managers are pressuring brokers to boost their yield on assets (velocity)

Brokers are finding themselves in the middle of a debate over how return on assets defines success. Should the veteran broker with more than $200 million in assets that yield less than 75 basis points in yearly production be prodded to work harder? Or is that broker a model of wise asset management and client service?

Some branch managers are pressuring brokers to boost their yield on assets (velocity) to as high as 2%, while others are warning brokers that as their assets grow they better keep velocity below 1%.

"It's a known fact around here that 1% is the goal," says a Merrill Lynch broker. There are a number of brokers in his branch who have $250 million in assets and only 30 basis points in velocity, he says, simply because they don't have the time to work closely with all their accounts.

"You see very few FCs who've been around more than eight years able to be at that 1% level," the Merrill Lynch broker says. "My personal belief is that managers here think that an actively managed portfolio where there is rebalancing of portfolios as the market changes--should have a velocity that's more than 30 basis points. I'm sure branch managers meet one-on-one with bigger producers and say, 'How can we help you increase your velocity?'"

A Prudential Securities broker says a new branch manager at his former firm, Merrill Lynch, pressured him to leave last year in part because his assets had low velocity. The broker had $270 million in assets, yielding between 30 and 40 basis points. The previous manager had been supportive of his plan to target corporate cash management business, he says. This resulted in a book mainly of CDs and Treasuries, but substantial assets. He had set a goal with the old manager to grow assets to $1 billion.

"The first thing the new manager said to me was, 'You should be doing three times the business," the broker says. "I told him it wasn't appropriate for my clients. I'm sure he looked at my book and saw the kind of business I did, but his mission was to increase production."

The broker says he's seen no written policy on velocity at Merrill, but attended a broker conference at the firm in which retail chief Launny Steffens said that Merrill wants to see an average velocity of 75 to 115 basis points.

While the former Merrill broker reports his Prudential manager doesn't push velocity, another long-time Prudential broker says his manager has made it clear that brokers ought to yield close to 2%. Most now yield 1%, he says, but don't feel strong pressure to reach the 2% goal.

"You'll get a written review from your manager that will say, 'You have this amount of assets, and you're not doing very well on the yield,'" the Prudential broker says. "But the review never says anything like, 'Your assets in mutual funds should be more productive.' The manager never singles out an asset class."

Prudential has no written policy on velocity, the broker reports. "Velocity goals vary a lot according to whether or not a manager has ever been in production," he says. "If a manager has been a broker, goals are more realistic."

A Salomon Smith Barney broker who's also worked for PaineWebber and Merrill Lynch says he's never had a branch manager prod him to boost velocity. "No one has ever asked about my return on assets here," he says, although the firm does track yield. "Anytime yield is discussed in meetings here, it's to say we need to keep it low."

It's the same story for a PaineWebber broker. "Velocity expectations only are discussed in the branch if a broker's velocity is too high," he says.

At EVEREN, "It's pretty much hands off," says a broker at the firm. "The firm takes the position you're the broker, you know your clients best, and you make the determinations you see fit."

A 30-year Dean Witter veteran says he's never heard any velocity goals, especially since he figures he'd be among the first to hear of them. A stock picker, he believes the market has topped and has moved a lot of client money into money market funds.

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