Broker Overtime Lawsuits

An entrepeneur who feels the need to file for overtime is a piker.

An attorney who encourages this kind of behavior is an ambulance chasing bottom feeder.

Let's do the math on the MERrill settlement of $37M to MERrill brokers in the state of California:

Let's assume the law firms get their customary 35% or so off the top. This leaves about $25M to split for the MERrill brokers in that state. I don't know what the class "period" or eligible time frame is/was, but let's assume it's 5 years. My guess is maybe 2500 or so brokers and ex brokers are eligible at best and maybe 1500 or so brokers and ex brokers are eligible at best if the class period is under 5 years.

What's $25M divided by 2500? Something like $10K a piece? Not a bad freebie bonus, is it?

The wirehouses' payouts and compensation structure is very flawed and I see no reason why any wirehouse broker doesn't go for the free bonus money which apparently MERrill thinks they're entitled to.

[quote=ymh_ymh_ymh]

Let's do the math on the MERrill settlement of $37M to MERrill brokers in the state of California:

Let's assume the law firms get their customary 35% or so off the top. This leaves about $25M to split for the MERrill brokers in that state. I don't know what the class "period" or eligible time frame is/was, but let's assume it's 5 years. My guess is maybe 2500 or so brokers and ex brokers are eligible at best and maybe 1500 or so brokers and ex brokers are eligible at best if the class period is under 5 years.

What's $25M divided by 2500? Something like $10K a piece? Not a bad freebie bonus, is it?

The wirehouses' payouts and compensation structure is very flawed and I see no reason why any wirehouse broker doesn't go for the free bonus money which apparently MERrill thinks they're entitled to.

[/quote]

There's probably a link somewhere to the final deatils, but I'd be shocked in the reps got anywhere near $10k. The lawyers, otoh, stopped at the local Porsche dealership to make a purchase on the way home the night the settlement was announced.

Typically, the law firms get 35% or so off the top, the rest gets "distributed" to the "eligible class" which means $25M divided by 2500 equals $10K if they choose to do it that way. If they choose to pro-rate the distribution on the eligible class' trailing 12 months, 24 months, 36 months (would depend on the class period), then the large producers get a much bigger CUT than the small producers.

One way or another, approximately $25M is going to be distributed to 1000-2500 MER and/or ex MER brokers in the state of CA.

This settlement by MER established a legal precedent for other wirehouses/states which class action firms intend to exploit.

FD: am not soliciting for any law firm. Do believe the wirehouse compensation structure is grossly flawed and its business model is on its way to extinction.

[quote=ymh_ymh_ymh]

Typically, the law firms get 35% or so off the top, the rest gets "distributed" to the "eligible class" which means $25M divided by 2500 equals $10K if they choose to do it that way. If they choose to pro-rate the distribution on the eligible class' trailing 12 months, 24 months, 36 months (would depend on the class period), then the large producers get a much bigger CUT than the small producers.

One way or another, approximately $25M is going to be distributed to 1000-2500 MER and/or ex MER brokers in the state of CA.

This settlement by MER established a legal precedent for other wirehouses/states which class action firms intend to exploit.

FD: am not soliciting for any law firm. Do believe the wirehouse compensation structure is grossly flawed and its business model is on its way to extinction.

[/quote]

Until I see otherwise I'm going on the theory that this one will be handled as lawyers usually handle them. That is they get new Gt3 and the "eligible class" gets a 50% off coupon at Jiffy Lube  

[quote=ymh_ymh_ymh]

 Do believe the wirehouse compensation structure is grossly flawed and its business model is on its way to extinction.

[/quote]

Care to futher that thought?

Sure, look at the "economics" of what the average wirehouse broker is producing versus his/her payout and what the firm is getting.

What's the broker getting? Maybe a dedicated sales assistant to answer the phone. An office or maybe a cubicle (rent). Shared use of a fax/copier. No direct access to equity or fixed income research which isn't that good to start with.

Can't the average 10 year plus in the biz broker do better on his or her own?

I don't think most have sat down and crunched the numbers.

[quote=ymh_ymh_ymh]

Sure, look at the "economics" of what the average wirehouse broker is producing versus his/her payout and what the firm is getting.

What's the broker getting? Maybe a dedicated sales assistant to answer the phone. An office or maybe a cubicle (rent). Shared use of a fax/copier. No direct access to equity or fixed income research which isn't that good to start with.

Can't the average 10 year plus in the biz broker do better on his or her own?

I don't think most have sat down and crunched the numbers.

[/quote]

First, what do you mean by "no direct access to equity..."?

I think you'll find the typical wirehouse guy thinks he's getting a well-known recognizable name that clients and potential clients warm to, a platform and array of products indies can't currently match, and relief from the tedium of minutia that he/she doesn't want to get involved with (compliance issues, personnel issues, billing, etc.). That may change, but that’s the situation currently. It's probably not wise to assume brokers haven't done the math.<?:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />

The indies provide the back office support so that's not something they can't get readily.

On direct access to research, I mean being able to pick up a phone (like the BSC, LEH, JEF, GS brokers) can and speak to an analyst if he or she wants on a client's behalf or to clarify something in a research report.

Personnel issues? What's so difficult at finding a decent sales assistant and getting along with him or her? I would think there are more inter-personal conflicts within the wirehouse environment such as having to deal with the compliance officer, branch mgr, assistant branch mgr, sales mgr, office mgr.

On the compliance issues, don't you think 90% of the registered reps do comply and would have no issues going independent? It's not like the major wirehouses haven't had their fair share of brokers creating serious issues (regulatory ones).

As far as structured products, do you really think the wirehouses offer anything superior other than oversubscribed IPO's and SPO's which only the top 10-20% can get for their clients anyway?

I know quite a few $750K plus in production ex wirehouse brokers who have gone indie via mostly RJF and they are much happier they have made the move (past 3 years or less).

"The indies provide the back office support so that's not something they can't get readily. "

Indies don't have the same access to the latest tools and the wide array of products, on both sides of the balance sheet. There's "back office" and then there's "back office". That's not a knock at indies, some may not vaule the difference, but there is one.

"On direct access to research, I mean being able to pick up a phone (like the BSC, LEH, JEF, GS brokers) can and speak to an analyst if he or she wants on a client's behalf or to clarify something in a research report. "

Wirehouse brokers CAN do that. I know guys at ML, SB and MS who so often.

"Personnel issues? What's so difficult at finding a decent sales assistant and getting along with him or her?"

Not much. Cost issues aside there's keeping up with payroll, DOL requirements, retirement plans, etc. It ain't like hiring a paperboy.

"On the compliance issues, don't you think 90% of the registered reps do comply and would have no issues going independent?"

That's not so much the issue as being responsible for compliance issues. The inspections, supervision, the files required to be maintained. Unless you're in managment in a wirehouse, you don't have to run it, just abide by it.

 "As far as structured products, do you really think the wirehouses offer anything superior other than oversubscribed IPO's and SPO's which only the top 10-20% can get for their clients anyway?"

Huh, yes. Oh, yes.

"I know quite a few $750K plus in production ex wirehouse brokers who have gone indie via mostly RJF and they are much happier they have made the move (past 3 years or less)."

I don't doubt that. OTOH, they picked up a great many side responsibilities they didn't have before. If they enjoy them, fine, if not, why bother with the relatively small difference in net income.

Mike, on the indie stuff, it really does NOT pay to go it 100% alone unless one's producing $500K plus in a non urban area or maybe $750K plus in an urban area. I know 3 brokers who left Morgan Keegan several years ago to set up shop with RJF in a non urban area and they're netting 25-40% more which to them is worth it. They hired 1 full time sales assistant to work with them and 1 part time one. They outsource their admin needs (accounts payable stuff). The full time one came out of their old office and the part time one is/was a junior broker (male) who decided he wanted to go law school but needed some income and didn't want to completely leave the securities business.

On the MER class action situation in CA, I was told the judge awarded the lawyers (quite a few firms), between 20-25% (they had to justify this via the work they had done---billable hours). Not sure what the judge used for a "per hour" standard (probably somewhere around $300/hr).  Typically judges in NY/NJ aren't quite as generous with the class action attorney compensation awards.

[quote=mikebutler222]

"The indies provide the back office support so that's not something they can't get readily. "

Indies don't have the same access to the latest tools and the wide array of products, on both sides of the balance sheet. There's "back office" and then there's "back office". That's not a knock at indies, some may not vaule the difference, but there is one.

[/quote]

You need to do some research before you talk.  What you say is true for many indies, but certainly not all.  For example, RJFS and Wachovia FINET reps get everything that their employed reps do that sit in the traditional branch offices of their NYSE sister firms. 

[quote=mikebutler222]

"I know quite a few $750K plus in production ex wirehouse brokers who have gone indie via mostly RJF and they are much happier they have made the move (past 3 years or less)."

I don't doubt that. OTOH, they picked up a great many side responsibilities they didn't have before. If they enjoy them, fine, if not, why bother with the relatively small difference in net income.

[/quote]

You can doubt all you want, but the statement is true.  And, for the $750k producer it's not a "relatively small difference in net income", assuming they're running their business efficiently.  Increased income aside, they're also gaining an asset on their balance sheet (their business that can be sold, etc.), they're gaining greater autonomy, etc.  But, independence certainly isn't for everyone, regardless of the benefits.  There are many $750k producers who willingly give up $450k a year to the wirehouses of the world because they're not comfortable or entrepreneurial enough to run their own business.  There's not a right or wrong to either decision.

[quote=Duke#1][quote=mikebutler222]

"The indies provide the back office support so that's not something they can't get readily. "

Indies don't have the same access to the latest tools and the wide array of products, on both sides of the balance sheet. There's "back office" and then there's "back office". That's not a knock at indies, some may not vaule the difference, but there is one.

[/quote]

You need to do some research before you talk.  What you say is true for many indies, but certainly not all.  For example, RJFS and Wachovia FINET reps get everything that their employed reps do that sit in the traditional branch offices of their NYSE sister firms. 

[/quote]

I have researched it, and while FINET is getting there, it isn't 100%. What you have there is almost 100% of what WACHOVIA has, not what leading edge firms like ML, MS and SB have. Believe me, I've been through this with a fine toothed comb and may someday make the plunge.

[quote=ymh_ymh_ymh]

Mike, on the indie stuff, it really does NOT pay to go it 100% alone unless one's producing $500K plus in a non urban area or maybe $750K plus in an urban area. I know 3 brokers who left Morgan Keegan several years ago to set up shop with RJF in a non urban area and they're netting 25-40% more which to them is worth it. They hired 1 full time sales assistant to work with them and 1 part time one. They outsource their admin needs (accounts payable stuff). [/quote]

I hope they're happy and I'm not making a judgement call here. Different strokes, etc.. What I am saying is I find it hard to believe, having been through the numbers myself many, many times that they can duplicate what they had and pick up 25-45%.

You find me a broker in the $750K range that left a wirehouse, kept the marble and oak office setting, paid for the assistant (or two), the furniture, the toll-free phone lines, the same level of marketing presence and the various software packages (full MorningStar, Polaris, perfomance data info) etc AND still picked that kind of difference in net. And that's leaving alone the issue of the added time they have to put into non-production issues that have to be considered when net income is defined.

I know plenty of indies in my area that I like on a personal basis and I wouldn't trade places with any of them, yet. Their offices aren't of the same  standard (and don't think clients don't notice), they don't have the subject matter experts to fall back on I have. They don't have free back-up should they take a vacation, or even play a round of golf during a weekday. They have to be concerned with many BS details that I don't give a care about when I leave at the end of the day. And they don't net enough more to make it worth my while.

[quote=Duke#1]

You can doubt all you want, but the statement is true.  And, for the $750k producer it's not a "relatively small difference in net income", assuming they're running their business efficiently. 

[/quote]

If they're maintaining the same standards of equipment, support and personel they had and figure they ought to be paid for their time spend on non-production issues, it is a small difference.

I[quote=Duke#1]ncreased income aside, they're also gaining an asset on their balance sheet (their business that can be sold, etc.),

[/quote]

You may be surprised to know that at least in some wirehouses you can sell your book. I know this because I just bought one.

[quote=Duke#1]

they're gaining greater autonomy, etc.

[/quote]

That part's true, but even that's not all upside.

[quote=Duke#1]

   There are many $750k producers who willingly give up $450k a year to the wirehouses of the world ...

[/quote]

Because they realize that everything around them, support, physical plant, insurance, compliance, marketing, information systems, experts in every imaginable are, all have a cost and wouldn't suddenly be free if they went indie. Thus, they know there's not $450k to pick up.

[quote=Duke#1]

because they're not comfortable or entrepreneurial enough to run their own business.  There's not a right or wrong to either decision.

[/quote]

While I agree there's no right or wrong decision, one thing I do take issue with and that this "not entrepreneurial enough" stuff. You don't get to $750k in production without being entrepreneurial. No one at a wirehouse gives you a business. They give you a palce to do business, you have to be savvy enough and entrepreneurial enough to form it.

Pesonally in my current situation I have no desire to pick up more income by taking on non-production responsibilities that come with being indie. I figure I can make up that marginal difference by spending that same amount of time and effort into production related work.

[quote=mikebutler222][quote=Duke#1]

because they're not comfortable or entrepreneurial enough to run their own business.  There's not a right or wrong to either decision.While I agree there's no right or wrong decision, one thing I do take issue with and that this "not entrepreneurial enough" stuff. You don't get to $750k in production without being entrepreneurial. No one at a wirehouse gives you a business. They give you a palce to do business, you have to be savvy enough and entrepreneurial enough to form it.

Pesonally in my current situation I have no desire to pick up more income by taking on non-production responsibilities that come with being indie. I figure I can make up that marginal difference by spending that same amount of time and effort into production related work.

[/quote]

Mike, "entrepreneurial" is relative.  I agree every successful rep is entrepreneurial.  My statement was "enough".   As an indy you're running two businesses -- investment biz & your own company.  Many reps just can't take on the business side of being an indy.  It's too scary for them, has too much risk for them, etc.  That's the element of being an entrepreur I'm talking about.

Your view of your personal situation is very reasonable & many reps feel the same.  That relates to my "comfortable" comment.  And, you make a valid practical point re using your time better for productive purposes.  But, assuming a well-run, efficient indy biz,that "non-productive" time is minimized.  And (getting back to the entreprenurial part), for some indies that time spent running their own business may actually be enjoyable and for others it's a worthwhile investment of time to achieve what they've been seeking.

BTW, it sounds like you've already done the research, Mike, so this may not be new.  But, one alternative to independent contractor is "independent employee" under the "Advisor Select" platform of Raymond James and "Profit Formula" platform under Wachovia.  You get most of the attributes of pure independence, but as an employee you're off-loading many daily responsibilities on to the b/d in exchange for slightly lower payout than pure indy.

For what it’s worth, I went indy from Edward Jones and I enjoy a very sizable increase in net, have a nicer office, and the difference in technology is comparable to going from the Wright Flyer to the Space Shuttle for less than 1/7 the cost. 

Scott:

Thanks for posting the availability of your legal services on this forum. I live and work in NY. If you know of any class actions in NY that I and many of my colleagues can join please post or PM me the info!

I want every cent those rip off artists Merrill and SB owe me!!

[quote=sbbroker]

Scott:

Thanks for posting the availability of your legal services on this forum. I live and work in NY. If you know of any class actions in NY that I and many of my colleagues can join please post or PM me the info!

I want every cent those rip off artists Merrill and SB owe me!!

[quote=sbbroker]

Scott:

Thanks for posting the availability of your legal services on this forum. I live and work in NY. If you know of any class actions in NY that I and many of my colleagues can join please post or PM me the info!

I want every cent those rip off artists Merrill and SB owe me!!

[/quote]

Then why did you join a commission-based industry?

Do you have to be working for a brokerage firm to collect on these cases, or is it OK if you used to work for one but do not any more?