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Prudential Responds The July issue of Registered Rep. magazine features a story entitled Chip Off the Old Rock which suggests Prudential Securities brokers are having an especially troublesome time in these difficult market conditions. We believe Prudential's story is much more positive as demonstrated by the following facts: All wirehouses are suffering but Prudential Securities may be hurting most.

Prudential Responds

The July issue of Registered Rep. magazine features a story entitled Chip Off the Old Rock which suggests Prudential Securities brokers are having an especially troublesome time in these difficult market conditions. We believe Prudential's story is much more positive as demonstrated by the following facts:

“All wirehouses are suffering … but Prudential Securities may be hurting most.” And later in the story “…many Pru brokers are struggling with increased production goals…”

Our Financial Advisor productivity remains high and continues to improve while productivity at other firms has declined as reported by McLagan.

“Prudential Financial's brokerage arm lost $19 million in the first quarter…”

Prudential Securities does not report earnings as a standalone unit and as such it is inaccurate to equate Private Client Group losses with Prudential Securities losses. However, comparing Private Client Group losses quarter to quarter, the story did not report that the Private Client Group has significantly reduced losses, down from $79 million (including $21 million of restructuring charges) in the fourth quarter of 2001 to $19 million in the first quarter of 2002 as reported publicly in Prudential Financial's quarterly earnings announcements.

“They're downsizing with the full intent of being a firm of about 2,500 to 3,000 brokers, max,” says a recruiter. “And they're trying to get everybody doing nothing but managed money.”

We are not drastically downsizing our sales force, nor have we ever planned to release the bottom quintile producers, an assertion made elsewhere in the story and, erroneously, attributed to me from an interview with your magazine from last January.

The statement we are moving to doing “nothing but managed money” is at odds with our stated objective of 50 percent recurring revenue and 50 percent transactional business, which your magazine reported in its February 2002 issue.

“(A core broker is) likely someone who averages around a reported firm goal of $600,000 in annual production.”

Core financial advisors are defined as producers in the top three quintiles or those with production greater than $300,000, a much more inclusive number.

“Brokers at several offices around the country say talent is being cherry-picked by other firms…”

Our year-to-date annualized attrition rate of Core financial advisors going to our competitors is exceptionally low.

In short, we believe the assertion by your magazine that our brokers are faring worse than others in the current market environment is misleading.
Jamie Price, president
Prudential Securities
New York

A Broker's True Worth

I enjoyed your June cover story on compensation but it also brought to mind the issue of “front-end bonuses.” Firms are still paying them although not quite so briskly. As a branch manager in the industry for 15 years, I have observed that most brokers who move actually need the money and most who don't need the money stay, if the environment is fine.

But even when the firms were paying 100 percent to 150 percent of last year's gross and the brokers thought they had cut a fat hog, they sold into the greed and gave themselves away. Think of it this way. Real estate is a popular investment today and if I looked at a commercial property which yielded $300,000 per year, and could buy it in today's market at a 12 percent cap rate, then I would be willing to pay $2.5 million for that property. Actually, properties go for lower cap rates such as 8 percent. Cap rates change depending on the quality of the asset.

If you apply cap rate pricing to a broker, the comparison is interesting. For example, if you are a $500,000 producer and you get a 40 percent payout, then the firm is getting $300,000 annually. Therefore, if your business was worth a cap rate of 12 percent, you should get $2.5 million to move. One-hundred percent of last year gross sounds big, but for a $500,000 producer that is a cap rate of 60 percent. Brokers have been selling themselves at a level which equates to buying a bond in a company in default. Greed won, they lost.
Larry D. Watts, vice president and branch manager
A.G. Edwards
Stockton, Calif.

Tired of the Baloney Sandwich? Try Charging Your Wholesalers

USA Today and CNN recently covered the story of a medical practice in the Seattle area that now charges pharmaceutical company representatives $30 just to visit with the doctors.

How long will it be before financial advisors start charging wholesalers for the same kind of visit? Today, wholesalers operate informally, bringing along food and golf balls to entice advisors to meet with them. How soon will wholesalers come up against a “shake down”? Advisors charging $30 for a half hour of their time?

To avoid this, wholesalers must bring real value to these meetings. Golf balls are nice but in tough economic times, a golf ball will not help advisors generate new assets or retain the ones they have worked so hard to acquire.

Wholesalers need to educate advisors and make themselves more than product pushers like drug company reps. They need to bring real value to help advisors.
Martin R. Baird, president
Advisor Marketing
Phoenix, Ariz.

Know Your Alphabet

We appreciate your publication's efforts to inform readers about certification and credentials for personal financial planners. However, we wish to point out an inaccuracy in your May article Basic Training.

The article in the May issue correctly stated that Certified Financial Planner Board of Standards Inc. (CFP Board) awards the CFP® certification. CFP Board owns the marks CFP®, Certified Financial Planner and the federally registered CFP (with flame logo), which were transferred to CFP Board when the organization was formed in 1985. However, the article mistakenly said that the College for Financial Planning “split from the board” and that CFP Board formerly provided education.

They have always been separate entities. Since its inception, CFP Board has registered college and university curricula that meet standards of academic rigor and coverage of financial planning topics. Prior to that time, the College for Financial Planning owned the marks and granted them to individuals who completed a series of university-level courses and examinations available only at that institution.
Kathryn Ioannides, director
education and examination
CFP Board

At What Cost Training?

I found Basic Training very interesting. One item the article failed to address, however, is the time commitment of studying for advanced certification. After a few years in production, I studied for and eventually earned the CFP designation. Unfortunately, preparation for the exam came at the expense of building my business. As a result, I have much less under management then many of my colleagues and have received stern word that my wirehouse may let me go soon. For those who would like to pursue an advanced designation, make sure your business can afford to be put on hold for the time necessary to get the designation.
Name Withheld

Trading Places

I like your tip-of-the-hat to the movie Trading Places. Am I correct in assuming that the name on the business card in the illustration for the May Head of the Class story is a reference to the Dan Aykroyd character?
Pete Hines
Studying to get his CFP

Editor's Note: We didn't think anyone would notice, especially since we left the final “e” off of Aykroyd's character's name, Louis Winthorpe.

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