Street Level: The Axe

By agreeing to pay $100 million in fines and change how it reimburses analysts, Merrill Lynch hopes to put its conflict-of-interest woes behind it.

By agreeing to pay $100 million in fines and change how it reimburses analysts, Merrill Lynch hopes to put its conflict-of-interest woes behind it. Whether that happens remains to be seen (can you say class action?). But clearly, Merrill rank and file might now have a story to tell their disillusioned clients: That the matter has been settled and that real changes in analyst-investment banking protocols have been made. Merrill Chairman David Komansky certainly hopes that the settlement restores the credibility of Merrill research that even Komansky acknowledges has been damaged by the New York State attorney general's revelations.

That lost credibility is a price that Merrill brokers may wind up paying as they try to convince customers to invest (see page 16). There can be little doubt, however, that Merrill's moves will become the template for the industry. (Goldman announced the same day that it too was examining how it pays its analysts.)

A more immediate issue for brokers is Wall Street's continuing cost cutting. After making the biggest cuts since 1974 in other units, management is now looking at brokers. In broad terms, brokers who do less than $200,000 in gross production are in danger of losing their jobs, industry headhunters say.

Where do you stand? Most of our readers appear to be in the fat part of the bell curve — the kind of brokers that firms need. But some are not. Take some time with our compensation package, starting on page 26, to see where you stand. We were surprised to learn that the average broker who responded to our survey grossed on average $342,000, and only suffered a 3.6 percent dent in total compensation last year compared with 2000. Not bad, considering the state of the market. That number, though, papers over the nearly 40 percent who experienced up to an average 30 percent drop off in comp. Turns out that the brass at the wirehouses are right: Fee-based books are more profitable and hold up better in market downturns.

One way to keep more of what you make in the brokerage business — to get payouts closer to 60 percent than the 42 percent norm from our sample — is to go independent. For lots of brokers, this works. But before you take the indie plunge, read Anne Field's story (page 45) about the woes of going it alone.

Never heard of RBC? You undoubtedly will. Short for the Royal Bank of Canada, RBC has been making acquisitions in the United States. Consequently, writes contributor Sheldon Gordon from Toronto, RBC is now the ninth-largest brokerage in the United States. Turn to page 55, please.

Reps drool at the prospect of landing multimillion dollar clients. Contributor Louise Witt takes a look at advisors who have figured out how to win athlete and celebrity clients. How did they do it? See page 65.

Comments? Drop us a line at 249 W. 17th St., New York, N.Y. 10011-5300. Or email us, [email protected] or (212) 462-3591. Publisher Rich Santos can be found at [email protected] or (212) 462-3586.

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