Firms Paying Big for Recruits & Retention

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Feb 10, 2009 6:05 pm

More firms paying handsomely for recruits, and to retain their advisors.

UPDATE: Smith Barney Raises Recruiting Deals For Top Brokers   NEW YORK -(Dow Jones)- Citigroup Inc.'s (C) Smith Barney retail brokerage has raised its recruiting package for top-producing financial advisers, according to people familiar with the situation.

Separately, Merrill Lynch Global Wealth Management, a unit of Bank of America Corp. (BAC), has also raised its own deal for top-tier brokers, the sources say.

In boosting its recruiting package, Smith Barney is seeking to align its recruiting deal with that of Morgan Stanley (MS), recruiters believe. Last month, Citi and Morgan Stanley agreed to create a joint venture called Morgan Stanley Smith Barney, which will combine the two firms' brokerage forces and have roughly 20,000 advisers.

Smith Barney is now offering brokers in the first and second quintiles, rankings determined by trailing 12-month production and length of service, up to 245% of their trailing 12-month production. These advisers can receive a 140% cash upfront payout. In the subsequent three years, they can receive additional payments of 35% of their prior production for bringing in a large proportion of their clients' assets: 75% of the assets the first year, 90% the second, and 100% of their clients' assets to Smith Barney the third year.

Previously, Smith Barney offered some top-tier brokers a 120% upfront cash payment.

Like Smith Barney's current deal, Merrill Lynch is now offering top brokers a 140% cash upfront payout.

A Smith Barney spokesman declined to comment for this story. Merrill Lynch Global Wealth Management also declined to comment.

Recruiting of advisers has become ultra-competitive in recent months, given the wave of consolidation in the brokerage industry during the financial crisis. Advisers are looking to join new firms because of instability at their firms, and to recover lost wealth from plunging company stock prices, which lowers their deferred compensation levels.

In many cases, however, lower-producing brokers are being pushed out as firms look to integrate large brokerage forces into one entity.

There had been talk that after the first of the year, brokerage firms would begin paying less to recruit financial advisers.

Big recruiting "deals that were supposed to be coming down are still aggressive, but only for first and second quintile producers," said Darin Manis, chief executive of RJ & Makay, a recruiting firm.

-By Brett Philbin, Dow Jones Newswires; 201-938-5393; [email protected]

Feb 10, 2009 7:01 pm

guess they saying fu to congress and obama nations  

Feb 10, 2009 8:48 pm

Did you notice the part about lower producing FA’s being forced out.  Hate to see that.

Feb 10, 2009 8:51 pm

Did you notice the part about lower producing FA’s being forced out.  Hate to see that.

  20% payout will do that to people...sure they will let people sit there until the chair breaks, but at 20% eventually people will start leaving.  Isn't under 350K at SB 20% or something like that?
Feb 10, 2009 10:11 pm

300-350 is 30%, under 300 is 20%. This is for > 9 years LOS

Feb 10, 2009 11:05 pm

back ends seem kind of tough in this market.  especially since by the time you move and bring over your assets the market will be down another 20%.  you would think with all the guys getting canned and no new blood coming into the systems packages in the long run should continue to go up.  supply and demand.  when will they learn to raise payouts instead of always poaching?

Feb 11, 2009 1:21 am
Bonuses alive and well for U.S. brokers Wed Feb 11, 2009 3:47am GMT

By Joseph A. Giannone - Analysis

NEW YORK (Reuters) - Even as the financial crisis drives hundreds of thousands of bankers into the unemployment lines, there is a red-hot market for the folks who cater to the mom and pop investors -- the retail broker.

Investment banks are slashing traders, underwriters and dealmakers as the toughest market in decades generates massive losses and erodes revenue. Yet many of these same firms are dangling big bonuses to lure brokers and expand a business viewed as a more reliable source of income.

Wall Street firms generate fees for managing assets, typically 2 percent of an individual's account assets, as well as commissions for stock and bond trades and increasingly fees from loans and other services. Brokerages have courted ultra-wealthy customers, who generate even more income.

The business helps offset the more volatile, capital-intensive business of conducting trades for hedge funds, pensions and other institutional clients. Brokers can also bring in deposits, a stable source of funds that can be valuable when capital markets freeze up.

Recruiting and retention incentives for financial advisers have never been better. Brokers are dangling packages of as much as three times the revenue a broker generated for their employer in the previous year, recruiters said.

Poaching activity has only grown more frenzied as industry giants Merrill Lynch, UBS, Morgan Stanley and Citigroup bid for top producers that can offset losses in other businesses.

"It's the only game in town. There's no interest in traders or bankers; the industry has been downsized," said broker recruiter Rick Peterson of Rick Peterson & Associates. "People see the importance of adding to the brokerage business. It's what pays the bills."

Morgan Stanley, where exposure to mortgages and other assets fueled big losses, cut nearly 2,000 jobs last year and ended fiscal 2008 with 46,964 employees. The ranks of advisers rose by more than 400 to 8,426 in that period.

Meanwhile at UBS, where overall employment plunged by about 5,700 jobs to 77,783 last year, brokerage headcount climbed in the fourth quarter by some 300 jobs to 8,182.

Brokers had until recently commanded pay packages that were two times their annual revenue, but since the turmoil of last fall the price has risen to 280 percent of annual production for brokers who can generate $1 million or more each year.


Costly recruiting wars are an unavoidable part of the business.

Not only are brokerages battling the impact of slumping markets on fees, they must replace advisers who jump to rivals and take clients with them. The pace of defections has been especially high at banks hard-hit by the credit crunch.

Merrill Lynch, a brokerage giant that nearly succumbed to credit losses last fall, has faced defections since it agreed to a merger with Bank of America Corp, including the departure of former wealth management chief Bob McCann.

Headhunters said rivals swarmed as Merrill's losses, outrage over accelerated bonuses and CEO John Thain's $1.2 million office spree made brokers and their clients restless. It dealt a setback for Bank of America chief Ken Lewis, who called brokerage business Merrill's "crown jewel."

Morgan Stanley and UBS deny that they are targeting Merrill advisers, but headhunters say advisers are being lured by lucrative packages and the promise of greater stability.

"Merrill brokers don't have lot of faith in Ken Lewis," said Carri Degenhardt-Burke, who runs Degenhardt Consulting. "Brokers don't know who among their managers is there anymore. Who will represent them?"

Likewise Citigroup's woes and management churn have spurred unrest at its Smith Barney unit. Citi last month agreed to create a brokerage joint venture with 20,000 advisers controlled by Morgan Stanley.

Morgan Stanley is eager to expand its retail businesses to reduce its dependence on capital markets earnings and funding.

UBS has been an aggressive recruiter as it contends with credit losses, regulatory probes and now Justice Department accusations that it helped U.S. clients evade taxes.

"With all this upheaval, brokers have been more open to making moves than we've seen in the 27 years I've been in the business," Peterson said.

All this movement comes at a cost, and it can take years for firms to earn a return on their investment. Morgan Stanley has set aside more than $2 billion for retention packages.

Yet firms have little choice but to keep pace, since it is difficult to achieve the same growth by training new advisers or generating new money from existing clients.

"They can't grow this systematically. They have proved that the only way to achieve growth is to buy it out in the marketplace," said Howard Diamond of Diamond Consultants, a broker recruiting firm.

(Editing by Matthew Lewis)

© Thomson Reuters 2008.

Feb 11, 2009 2:16 am

Please help me understand why y’all are willing to take a front check and sign a multiyear contract with a wirehouse after the events we’ve witnessed in the last 12 months or so.  What am I missing?

Seriously.  I’m not trying to stir the pot here.  Tell me your side of the story.  I have space to fill in my branch and I don’t understand the loyalty to the wirehouse platform.

Feb 11, 2009 6:38 am

It's called "an up front check with back end juice" and many of the rep's on this board are willing to sign their soul away to the devil in order to get some cash back into their accounts after getting slaughtered in this market. Imagine if all of your deferred comp and 401k was in ML, WB or C stock. 

I'm not saying independece is the silver bullet for all but with all the other options available such as RJ, Stifel, Baird, Janny, Keegan,Davidson etc...There really is no reason why so many rep's are signing on with the major wire's because every last one of them have been pounded in the media. No other reason that is except to collect "the up front check".     I really can't blame a guy for doing this if they have no other choice. Sure most contracts are 7-10 years but if things don't work out they can always bail in a few years after things rebound and hop to another wire & have them pick up the tab remaining on the contract. It's all part of the game. Not my game...but I have several friends that are doing this in todays' environment.  
Feb 11, 2009 7:30 am

The wirehouses are sure doing a good job of making sure the won't have a long-term future.  None of these firms have a way to build up recruits and their clients from the ground floor.  They pay blood money to trainees to bring in a few million in assets before they get canned and can only poach from other wirehouses which is a zero sum game for the industry.  No wonder they take 60% of your production. 

Feb 11, 2009 8:04 am

That’s when the whores come in, shaking their little behinds for all the men…

Feb 11, 2009 1:55 pm

Wire deals are simple: BIG $ upfront, then steal it back over 9 long hard years. Been there, doing that. 

Feb 11, 2009 2:10 pm

Everybody needs to go to Edwards and Jones and sell Putnam A shares, they are the best!

Feb 11, 2009 2:36 pm

Please tell me that was a poke at a little humor?

Feb 11, 2009 2:51 pm

That’s when the whores come in, shaking their little behinds for all the men…

      Excuse me what was that? Men laying their trick-money down.  Twenty dollars to pay the rent!
Feb 11, 2009 4:03 pm

Please help me understand why y’all are willing to take a front check and sign a multiyear contract with a wirehouse after the events we’ve witnessed in the last 12 months or so.  What am I missing?

Seriously.  I’m not trying to stir the pot here.  Tell me your side of the story.  I have space to fill in my branch and I don’t understand the loyalty to the wirehouse platform.

  How do you sit across your desk from a client whose portfolio is down 40%, smile and say it'll be OK?  Meanwhile your firm lost so much money last year that they had to sell out to the competition just to keep the name alive.  And to top that off the only reason you're smiling is because you know that you just made the equivalent of last year's gross in bonus, just for staying with your failing company.  BTW, the money that you just got for that bonus was TARP money.  So that client who is down 40% isn't just paying you your 1% fee, but they're also paying, through the taxation on their SS check, your retention bonus.    I understand the concept behind retention bonuses.  You have to have advisors in order to have a company.  How about, here's $10K cash.  No strings attached.  You can have it if you stay.  Or, we'll raise your payout by 10% this year and next year, if you just stay with us.  Go work hard, bring in new assets, get rewarded through your hard work. 
Feb 11, 2009 5:20 pm

Spiff  -  Just like everything else, you have to look at what the market is paying.  And like the articles say… retention and recruiting dollars have never been better.   10% when other firms are paying 100-250% just isn’t competitive if you are serious about retaining talent and assets.    DL and JH know this.  IF WFC doesn’t care then they can deal with what happens which would likely be more advisors and assets going out the door.

  It is what it is. And that is why I have said there will be retention.
Feb 11, 2009 5:41 pm

Exactly, well said Long. Tell me why you have to pay 6% of a million dollar house to sell it, when the only part that’s yours is the fallen equity that’s worth only $100k? I mean really… it is what it is.

And no, the money is not TARP money. Just because one firm got TARP money, doesn’t mean that money is being paid to advisors. Firms did not have a choice but to receive TARP money and either friggen way, the firms are not getting the money from TARP for friggen free, so GET OVER THE TARP CRAP ALREADY!

Feb 11, 2009 5:55 pm

Wait a minute Mr. Big., TARP money may not be going DIRECTLY to retention but if TARP wasn’t there they wouldn’t have to worry about retention bonuses. 

Feb 11, 2009 6:39 pm

That’s not necessarily true. First off, it depends on the firm. Like I said, the Fed FORCED the big firms to take TARP money whether they wanted it or not. Secondly, as I already mentioned, the TARP money is not free, it must be repaid and with interest. Lastly, even if you were right, we wouldn’t have to worry about retention awards, we’d have to worry about transition awards, which are usually more than twice as much or more.