In his 13 years as a broker with Prudential Securities, Ellis Prince Jr. figures about seven managers came and went at his branch. Prince sat back and watched only slightly less turnover in the regional manager position. A veteran of several Fortune 500 companies before a mid-career shift to brokerage, Prince says he was shocked at the revolving door; he was accustomed to building close relationships with managers.
Prince says the lack of relationship on the regional level came to the surface when he was forced to resign by a branch manager who sullied his U-5 with client complaints. Prince presented affidavits from the clients to regional management. Nothing happened. He didn't get his U-5 changed until he won an arbitration two years after his resignation.
"This problem easily could have been taken care of by just talking to someone at the regional level who knew me well, who knew my record and the situation in the branch," says Prince. "It was an extreme example of what firms can do when they don't supervise a branch manager."
Who manages branch managers? "That's easy to answer," says Bill Singer, a New York securities attorney. "You just have to write 'nobody.'"
Of course, "nobody" at a large firm means regional managers, and actually there are more of them than ever.
"Most majors have restructured regional management in the past two to three years to put another layer of management in place," says a California recruiter and former wirehouse regional manager. "It builds another barrier to compliance problems reaching senior management top levels."
Trouble is, that barrier too often is window dressing, brokers and branch managers report. "Regional management often is the epitome of the Peter Principle," says a broker in the Midwest of his experience with regional managers. "So often, these guys are just in the good old boy network, not trained at all or very little."
Asked to describe the relationship with his regional manager, an A.G. Edwards branch manager responds: "I actually have two I have to report to. I try to have as little communication with them as possible."
Some firms even discourage brokers from going to regional management with a branch manager problem. At one wirehouse, says a recruiter, it's understood that brokers don't go over a branch manager's head, or they'll be fired. At another, he says he hears frequent broker complaints that unless you're a top producer, you won't get a hearing from a regional manager.
Regulators, too, have long complained that regional management has been a weak link in supervision, says Dexter Johnson, a Chicago securities attorney and former SEC enforcement attorney.
The SEC recently increased failure to supervise sanctions, but regional managers aren't being targeted for enforcement actions "any more or less" than any other management level, says Colleen Mahoney, deputy director of enforcement at the SEC. "We want firms to know that we're focusing more on whether all levels of management at a firm ignored red flags," she says. Mahoney says regional managers haven't been the subject of any major enforcement actions lately.
Political Moves Branch managers report that some of the recent regional management restructuring has come from firms eager to impress regulators with their supervision. Long-time regional managers are uprooted and replaced with inexperienced youngsters eager to make a mark with senior management.
"The biggest thing they like to do is make you feel they are God in your universe," says Jamie Gittins, a broker with Intercal Securities in Sacramento, Calif., and former large-firm branch manager. Heads start rolling, but too often for political reasons.
"They'll get rid of you if you're powerful, if your branch is doing better than a friend's," says Gittins. "There's no one to objectively evaluate relationships."
Gittins believes his branch management career at Piper Jaffray was short-circuited by a regional management restructuring that amounted to an overreaction to the derivatives problems the firm had in its bond funds. Attracted to Piper because all of its management levels had been in place at least 10 years, Gittins was charged with revitalizing a sluggish branch. But soon after he joined, the firm began replacing regional directors. They were young and aggressive to make changes, says Gittins. His new director turned out to be an enemy of one of Gittins' friends at another branch.
"The first thing he said to me was, 'I understand we have a mutual friend, one who likes you, but doesn't like me at all.'" Within six weeks, Gittins was fired. The regional director told him the reason was the branch's continued revenue problems, although Gittins claims in less than a year, he'd brought the branch from 61st position in revenues to 23rd. Soon after he left, the firm fired both the regional director and his superior, Gittins claims.
Sometimes good regional manager relationships go bad. Kenneth Green has been a branch manager for over 20 years. "In the past, I had a regional manager who was a very good friend, but when the heat happened, he wasn't there." Green won't elaborate, saying only that "maybe a regional manager gets concerned about his position in the firm and that's why he doesn't back you up when you need it."
Now at A.G. Edwards in San Jose, Calif., Green praises his regional manager for leaving him alone. "He gives an awful lot of latitude to run our offices like our own businesses," Green says.
Management Shuffle Merrill Lynch gets good marks for a regional management structure that's well-organized, has low turnover and is responsive to branch managers. Branch managers are supervised by complex managers in charge of only several branches in a city or county.
"Branch managers have more power to make things work than at some other firms," says the California recruiter.
At the opposite end is Prudential Securities, criticized by some for a heavy-handed regional restructuring that has gone on for over a year. Some divisions were shuffled and reshuffled, and regions, the layer closest to branch management, were doubled. In the process, say observers, some support staff lost jobs at the same time additional support staff were hired, creating broker discontent.
Some decision-making that used to stop at the regional manager's desk has been pushed up to the divisional director level. "Now, if a branch manager has a problem, he calls the regional manager, but the regional manager now has to call the divisional manager," says the California recruiter. "The regional manager doesn't have the authority he used to have, and branch managers feel that the people in power are unknown to them." In another change this year, a healthy chunk of branch manager compensation now is at the discretion of regional management.
Restructuring also has taken place this year at PaineWebber and Smith Barney. PaineWebber has replaced several old-timers at the regional and divisional levels with younger executives-a good move, according to some observers. But at Smith Barney, "there are a lot of complaints because of a pretty healthy turnover," says Singer.
Smith Barney illustrates what happens when firms are bought out. Management turnover appears to be a purge of old Shearson managers after former Smith Barney executive Michael Panitch returned in early 1995 to head the retail division. Several of the dismissals became high-profile when the former managers filed complaints.
But a long-time Smith Barney branch manager in California maintains that the restructuring has been "more of a gentle shift," resulting in more branch manager support. This fall, he says, the firm announced the addition of a sales and training director for each region.
More hands-on sales support from regional managers is a change all over the Street, says the Smith Barney branch manager, who has worked for two other wirehouses over a more than 20-year career. "Years ago, the regional director was like a god. Mine was impossible to reach, wasn't a leader and was mainly involved in leases and paperwork. They all were," he says.
His regional manager now has been in place 15 years. When a very large, complex account recently came into the branch, the Smith Barney manager says, the regional manager stepped in to help plan its management, a move that was key to keeping the account, the manager says.
But there's a long way to go before regional managers gain a reputation for being good supervisors and well-supervised.
"You might have regional managers visiting branch offices more frequently now," Johnson says, "but there's no dramatic change in how regional managers supervise branch managers."
Marshall Cassedy Jr., a former Merrill broker, was awarded more than $400,000 by an NASD arbitration panel this summer on claims that he was fired and defamed on his U-5 after criticizing his regional manager.
In October 1992, Cassedy, a 14-year veteran in Merrill's Tallahassee, Fla., branch, took a call from his division director congratulating him on his production performance. "At the end, he asked me if there's anything he should know about, and I unloaded some ethical as well as management complaints I had about my regional manager," Cassedy says. He declines to describe the complaints.
The conversation apparently was relayed to the regional manager. Several months later, Merrill terminated Cassedy.
Merrill wrote the following on Cassedy's U-5: "Mr. Cassedy was terminated when it came to management's attention that he had attempted to respond in writing to a customer complaint without the prior knowledge or approval of branch management." In his arbitration complaint, Cassedy claimed that he had responded to a request for a trade correction, not a complaint. The letter, he says, was in his sales assistant's typewriter, unsigned, when the branch manager saw it and removed it.
"No one talked to the customer involved and not one of the six management people involved with the U-5 filing ever talked to me to hear my side of the story," Cassedy says.
Cassedy also alleged that Merrill refused to give him an earned bonus and accrued benefits stipulated in its incentive compensation plan, totaling more than $100,000.
In its response to Cassedy's allegations, Merrill said that Cassedy had committed "a long list of policy violations during his 14 years of employment." The response provided no explanation why the firm had allowed the alleged violations to continue. In fact, Merrill had sent Cassedy on a recognition club trip to the Olympics in Barcelona, Spain, only two months before he talked to his division director, says Cassedy.
The arbitration panel agreed to Cassedy's requests for nearly $180,000 in costs and gave him $300,171 in damages, and ordered Merrill to delete its U-5 entry.
Merrill never followed the panel's order to amend Cassedy's U-5, says Cathryn Mayers, a Denver attorney who represented Cassedy. Mayers says she wrote to the NASDR's enforcement division to compel Merrill to make the filing, but got no response. Ultimately, Cassedy contacted the Central Registration Depository and provided the award for them to make the amendment.
"I think the arbitrators recognized a real lack of investigation on the part of Merrill Lynch of the underlying circumstances of Cassedy's termination," says Mayers.
Merrill is appealing the award of attorneys' fees in Florida court.
Cassedy now works as a broker for D.E. Frey in Tallahassee, Fla.