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A Perilous Position

Rick Peterson, a Houston recruiter, places about 75 clients a year. But when firms come to him to scout out branch office managers (BOMs), those who'd make the best prospects are increasingly loath to step up. I'm asked by many firms to come up with producing branch managers in offices all over the country, and that has become a very difficult job to fill, says Peterson, the president of Rick Peterson

Rick Peterson, a Houston recruiter, places about 75 clients a year. But when firms come to him to scout out branch office managers (BOMs), those who'd make the best prospects are increasingly loath to step up.

“I'm asked by many firms to come up with producing branch managers in offices all over the country, and that has become a very difficult job to fill,” says Peterson, the president of Rick Peterson & Associates, which specializes in the brokerage industry. “Brokers who turn me down see what their managers have to go through and say, ‘No thanks.’ They're qualified and have management experience but are as reluctant as the dickens to ever get back into it.”

And with reason: The duties of BOMs (and Office of Supervisory Jurisdiction [OSJs], as their colleagues who supervise independent contractors are called) have morphed from business strategist and rainmaker to compliance cop. The role, once considered a plum job and stepping stone up the corporate ladder, is increasingly being regarded as a risky, thankless task. Today the job entails slogging through Sisyphean piles of regulatory paperwork. A compliance slipup from any one of an office's FAs could be catastrophic to a BOM's or OSJ's career. On top of it all, many are trying to keep a handle on their own books as they dream up ways to grow their branch's bottom lines.

Further, there is some confusion over how a BOM or OSJ is to be supervised himself. And that stems from NASD Conduct Rule 3012, which is known as the Gruttadauria Rule. That rule was intended to prevent a supervisor from conflicts inherent in managing people whom he profits from, as is the case at broker/dealers. Notice to Members 0471, which was to clarify the rule, only served to confuse matters more, says Terry Lister, general counsel of the Financial Services Institute, which represents independent b/ds. “Nobody understands how the compliance staffs are to properly carry out their duties under 3012, and the Notice to Members just made it more confusing.”

Who would want such a job? As it turns out, not nearly as many brokers as before. “The impression we get from many clients is that there is tremendous confusion about what the BOM is supposed to do,” says André Cappon, president of the CBM Group, a financial services consultancy and an occasional contributor to this magazine. “Is he a compliance cop, a sales trainer, a sales leader, a role model, a professional manager dedicated to the P&L? I am not surprised it is tough to attract people to the job.”

Then there is the “scapegoating” issue. It doesn't help that branch managers are sometimes censured, fined or even fired for the regulatory infractions of the brokers they supervise, no matter how deceptive the perpetrator. “There's a high mortality rate as a branch manager,” says Rich Schwarzkopf, president of Schwarzkopf Recruiting Services in New York. “Managers have a big target on their backs saying ‘Shoot me if something goes wrong.’ The manager may have an office of 30 people, and any one of them can sink his career.” As a result, says Schwarzkopf, a former branch and regional manager, the heightened regulatory scrutiny is one of the biggest deterrents for brokers eyeing the management track.

“Complexing” the BOM

To save costs, Wall Street executives have been shrinking the number of branches — but putting more of them under the control of individual branch managers. In fact, it's not uncommon for one manager to oversee two, three, four or even five. Merrill Lynch, for instance, says it currently has 135 “complex managers,” each of whom may be in charge of up to six branches. Consider that in 1991 Merrill employed about 190 complex managers but had about the same number of FAs (roughly 15,000), according to a former Merrill executive who asked not to be named. (Merrill spokesmen also declined to comment on that figure.)

That the number of FAs per BOM is rising is odd, given the intense focus of regulators on the supervisory activities of b/ds. The anonymous former Merrill executive adds that 120 FAs in one branch was once considered a lot for Merrill. “Now it's not a lot.”

If that weren't bad enough, salaries for managers are still down significantly from their peak in 2000. Producing managers' total earnings in 2003 — the latest year for which data is available — was down 15 percent from 2000, the peak earnings year, at $273,202. Nonproducing managers saw their salaries slide 11 percent to $430,578 during that time, according to the Securities Industry Association.

Admittedly, much of the decrease is a result of the stock market downturn, but branch managers say increased duties also take a toll. “It's a lot more time consuming with compliance issues than it ever was. There is less time for your book and I'm not sure it's made up for [financially],” says Al Paulikas, manager for Raymond James in Farmington Hills, Mich.

In Demand?

Now that Wall Street has stopped cutting costs, firms are opening more branches across the country. According to the NASD, branch offices at member firms grew from 96,970 in 2004 to 99,053 by January of this year. Presumably, b/ds will have to hire at least some new BOMs. The question becomes: Who will take on branch management jobs?

B/ds say they're transitioning to an era of professional management, where the branch manager is seen as a career in itself rather than a pit stop on the way to something bigger or the final resting place for top producers.

“What you have now are people interested in being true managers, and it puts more of a premium on people who have those skills,” says Bill Roney, senior vice president and retail manager for the Great Lakes region for Raymond James & Associates. “In the past it might have been sufficient to be somebody who was predominantly a successful FA and secondarily a manager, but now the managerial skills certainly are in the forefront.”

Besides, top FAs won't be gunning for a corner office. Says CBM's Cappon: “A really good producer is not interested because he can make a lot of money producing. A bad producer does not qualify. The good branch managers are former above-average producers, not stars, who want a management career track, who have leadership skills and patience for the management process and politics. There are probably few such people.”

Those who pursue branch management in spite of all the possible traps it entails will likely have one of two motives. Some will see it as a way to climb the ladder within a firm. “There are some other attractive jobs on the inside, but not necessarily right there,” says one former branch manager. “It's the two or three jobs after branch manager that would be attractive, like national director of sales. It's a stepping stone to get there.”

Increasingly, though, b/d management is looking beyond the FA ranks to fill the BOM and OSJ jobs. Paul Richardson, president of Richardson Recruiting Services in Delray Beach, Fla., says larger firms are taking CPAs, regional administrators or those from compliance backgrounds and putting them through management training programs.

But once a person becomes a nonproducing manager, it's tough to turn back. “You give up your book, then they've got you and you're on the management carousel,” says Richardson. “Branch managers always say to me, ‘I should never have given up my book.’”

Sharon Rhodes, a branch manager for D.A. Davidson in Kennewick, Wash., opened her office in September 2001 and agreed to take on the role of manager because she wanted to work for a smaller firm in an area where Davidson did not yet have a branch. While she doesn't regret the decision “for a heartbeat,” when given a choice, she says she'll gladly shed the management duties.

“I never feel as though I am doing all that I need to do for my clients, and I never feel I am doing all I should be doing to help everybody in the office,” says Rhodes, who estimates she spends about a third of her time on regulatory and management issues. “Being a branch manager is not something I aspired to be. I consider my skills to be as a broker, and soon I'll go back to being a full-time broker and will be very happy.” In the next year or two, Rhodes expects to hand off management to a broker in the office who expressed interest.

Sweetening the Pot?

Should more potential managers shy away from the responsibility of branch management, firms may have to sweeten the pot to lure top talent. “Good producers are turning me down all over the place because they don't want additional responsibilities,” says Peterson. “They see managers being fired for things that were done on their watch. They see that potentially happening to themselves and think, ‘Why jeopardize my career or financial status?’”

That's not to say successful brokers can't flourish in branch management. Jay Zager, director of private client services for Sterling Financial, a full-service b/d in Boca Raton, Fla., was a nonproducing branch manager for 18 years for Bank of America, Dean Witter and Legg Mason, among others. He says the upside of managing may be more emotional than financial for many managers. “It's more rewarding when you understand that you're touching lives and guiding brokers to do the right thing by investors,” he says.

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