AG Edwards Crazy Offer

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Oct 24, 2006 2:03 pm

I received a call today from St Louis recruiting at AG Edwards. The offer was for bringing over $100 million or more of our assets- and if so, they will pay a grid of 200% for 2 years, no contract. Thoughts?  I thought this was bizarre.

Oct 24, 2006 2:20 pm

Is it a trade-off instead of getting an up-front check?  If so that's a pretty interesting offer; I haven't heard of that one yet.

Oct 24, 2006 2:23 pm

I suppose except they told me NO LOCK IN, NO CONTRACT- something just is not right. I think perhaps they are betting on long term either in us staying (fine firm culture, usually no capital to compete) or they are prepping for a sell off to a UBS or other. That's why I am soliciting feedback from you all.

Oct 24, 2006 2:39 pm

First of all, I think AG Edwards is a fine firm.  My friends in the business that work there seem to be very pleased with the whole setup.


On the actual offer, that's a new one on me.  I'm assuming that 200% payout takes the payout to about 80% of gross, which looks pretty good on the surface.  No contract means that if you don't like the company, you can always move elsewhere with no strings attached, although you have the hassle of moving again.


My guess is that AG Edwards is banking on you liking them well enough to stay after your double payout period ends.  Essentially, they are paying the equivalent of 80% of trailing 12, which sounds pretty good for a no contract deal.  For their part, they aren't pre-paying anything, so there's no risk of having to go back after a rep if things don't work out as well as planned, and there's still a bit of margin for them to work with.  They are also hedged for poor performance, since the double payout doesn't occur until you get to $100 million AUM.


The only thing that would make me hesitate would be if I were considering a move to independence.  This kind of offer could be a nice transition to independence, but it would still require a second move, and clients would have to be cooperative with that.  At some point, if you're moving constantly, I have to wonder how loyal your clients will be.

Oct 24, 2006 2:56 pm
WealthAdvisor:

I received a call today from St Louis recruiting at AG Edwards. The offer was for bringing over $100 million or more of our assets- and if so, they will pay a grid of 200% for 2 years, no contract. Thoughts?  I thought this was bizarre.


It's not so bizarre--there was a time when it was the only way such things were done.


It appears that Edwards is returning to what was perfectly acceptable for generations.

Oct 24, 2006 2:59 pm

I've not heard of us doing that, but it makes sense.  We all recently attended a conference in St. Louis where CEO Bagby stated no up-front money for recruiting, so this doesn't qualify.  The main announcement was an incentive to Edwards brokers to recruit larger producers for a maximum of 50k (cash and AGE).  Whoever you are talking to may be eligible for this if they bring you on board.

Oct 24, 2006 5:08 pm
Indyone:

First of all, I think AG Edwards is a fine firm.  My friends in the business that work there seem to be very pleased with the whole setup.


I think they are a fine firm as well-


On the actual offer, that's a new one on me.  I'm assuming that 200% payout takes the payout to about 80% of gross, which looks pretty good on the surface.  No contract means that if you don't like the company, you can always move elsewhere with no strings attached, although you have the hassle of moving again.


I agree with moving being a hassle and not making any sense to do every two years- I DID NOT think of it that they are actually just paying 80% of gross, good point.



My guess is that AG Edwards is banking on you liking them well enough to stay after your double payout period ends.  Essentially, they are paying the equivalent of 80% of trailing 12, which sounds pretty good for a no contract deal.  For their part, they aren't pre-paying anything, so there's no risk of having to go back after a rep if things don't work out as well as planned, and there's still a bit of margin for them to work with.  They are also hedged for poor performance, since the double payout doesn't occur until you get to $100 million AUM.


The only thing that would make me hesitate would be if I were considering a move to independence.  This kind of offer could be a nice transition to independence, but it would still require a second move, and clients would have to be cooperative with that.  At some point, if you're moving constantly, I have to wonder how loyal your clients will be.


We committed Monday to Wachovia's FiNet- so we're not considering the move, but over the last 15 years, I have not seen a deal like this and thought it was intriguing and wondered what this was all about.

Oct 24, 2006 5:08 pm

An accellerated payout is par for the course for AGE. The positive for the rep is no contract. The negative for the rep is the taxes. All in one year is an absolute killer. Also for a broker with this amount under management the deal is more than a little light if based on payout, coming in at about 36% up front. That number breaks down like this, 100,000,000 AUM with .8 ROA at 45% payout. Normal income would be $360,000. At 200% payout income doubles to $720,000. Still it's only $360,000 on $100,000,000 in assets and $800,000 in production. Definately light. 200% of production tips the scale in the other direction, way too generous.


A 100% front deal would leave the candidate with a tax bill of about $280, 000 spread over five years or more. That gives the rep a net net worth boost of about $520,000. Versus the AGE deal that gives the rep net $234,000 in their pocket. It's not even close. Any rep considering such a deal must ask themselves if they think AGE is 300k better than contending firms. Will there be some other factor that will make up the difference?


AGE has never been a serious contender for high end producers. Their refusal to pay front money, as smart as that is, usually eliminates them in the first round of interviews. They are, none the less, an excellent firm.