Every brokerage house wants the biggest and best brokers out there. But unlike other firms, A.G. Edwards isn't willing to pay for it. Instead of buying brokers like its peers with offers of big upfront forgivable loans, the regional firm is offering its own reps bonuses for successfully recruiting good reps.
Announced to advisors in mid-October at A.G. Edwards' national conference in St. Louis, the new recruiting strategy works like this: Current advisors that help bring over someone producing $300,000 in annual commission and fee revenue will be rewarded for their efforts with a $15,000 bonus, half of it paid in cash, the other half in restricted stock after one year. The bonus rises to $37,500 for a $525,000-plus producer and goes as high as $50,000 for a rep that lures an $800,000 producer over to AGE.
A.G. Edwards management, which was not available for extensive comment, said only that the new plan is a “good way to energize our recruitment efforts while attracting transfer FCs that share our client-first philosophy.”
A.G. Edwards says its noncorporate, highly independent culture and above-average payout speak for themselves, and already go a long way to draw the kinds of reps the firm is looking for. Clients and brokers do seem to dig the firm: AGE is a yearly award winner for customer satisfaction from J.D. Power & Associates, and usually ranks first or second in Registered Rep.'s annual broker report card issue. Reps coming to Edwards get an accelerated payout for their first year, as much as 100 percent of production for top recruits. Plus, the regular payout — 40 percent before restricted stock awards, an annual bonus that ranges from 4 percent to 9 percent and, among other things, the company's 401(k) match — is better than average, say recruiters.
But like everyone else, A.G. Edwards is making an effort to increase average rep profitability — hiring top producers and firing small fry. The firm has hired 200 transfer brokers this year, and let go around 100 underachievers (reps doing $175,000 or less in production). But there's still a lot of room for improvement — nearly 20 percent of advisors still don't meet that $175,000 minimum. As of the second quarter, the average AGE rep's annual production was up 11 percent year-over-year to $394,000, but still well below the industry average of $414,164, according to Keefe Bruyette & Woods analyst Lauren Smith. Meanwhile, the firm's 6,670 broker count — the fifth largest retail force in the industry — is roughly the same size it was in 2000, according to an October research report from Bank of America analyst Michael Hecht.
Will It Work?
The question is, when other firms are paying as much as 200 percent of trailing 12-months production to get the best reps to sign, is paying reps you already have to recruit their successful friends going to cut it? Danny Sarch, a recruiter with Leitner Sarch Consultants in White Plains, N.Y., says the firm won't be able to compete. (Of course, Sarch has a powerful bias. He probably doesn't want A.G. Edwards reps doing the job he gets paid to do.)
One veteran AGE rep says that the measure could actually be counterproductive. He's brought dozens of successful reps to the firm over the years and says if a potential recruit knows the AGE broker is getting paid to woo him, that broker will be less confident about the AGE broker's pitch for the firm. Another AGE rep says he's worried about stepping on his branch manager's toes. “It's not like I'm going to walk across the street to Smith Barney and grab my buddy for a cool $50,000 — if that does happen, what does that say about my manager whose job it is to know that guy?”
Incidentally, A.G. Edwards is investing in recruiting in other ways: It plans to increase the number of salaried branch managers from 10 percent to 15 percent, mostly in major city markets, so it can focus more attention on its reps and recruiting; and it's currently reviewing outside recruiting firms to beef up the pipeline of trainees to its training program from roughly 250 per year to 1,000.
And the firm is not exactly hurting financially. Second-quarter net revenue was up 6 percent versus the year-ago quarter, to $713 million, and net earnings for the quarter jumped 40 percent to $66 million. Net client assets at the firm reached $354 billion, a 9 percent increase year-over-year.
A.G. Edwards is often criticized for being “late to the party” when it comes to industry trend, like the shift to fee-based revenue streams. At wirehouse rivals, assets in fee-based accounts are in the 20 percent to 30-plus percent levels, versus 11 percent at A.G. Edwards. On the other hand, Bernstein analyst Brad Hintz says the snail pace of change at the firm hasn't seemed to harm it yet. And although its resistance to do what other firms are doing has been seen as a weakness, it is also a strength. Says Hintz: “It's a very stable place.”