Despite the intense scrutiny on executive compensation by legislatures and regulators, major brokerage firms continue to offer generous recruitment packages to top brokers.
Despite the intense scrutiny on executive compensation by legislatures and regulators, major brokerage firms continue to offer generous recruitment packages to top brokers.
Overall, industry packages for leading producers are running at 180% to 240% of trailing 12-month production, down only slightly from a 2008 peak of 200% to 265%, said Richard Kronman, founder of Kronman Matthew & Associates Inc., a Los Angeles-based recruiting firm. Those packages include both front- and back-end payments, he said.
“Deals are holding up,” said recruiter Danny Sarch, founder of Leitner Sarch Consultants Ltd. in White Plains, N.Y.
“The market has been good for a few months, firms have seen what the worst case might be, [and current levels of business] may be a fair indication” of how the retail business will hold up, he said.
AGGRESSIVE OFFER
An attractive offer from Merrill Lynch & Co. Inc. of New York has helped put a floor on deals.
“Merrill Lynch has a very aggressive package” that comes to 250% of trailing 12-month production, plus lost deferred compensation, Mr. Sarch said.
The deal is only for brokers in the top quintile of production, recruiters said.
“I'm interested to see if [other firms] adjust to the Merrill Lynch [package],” Mr. Sarch said.
Merrill, now a unit of Bank of America Corp. of Charlotte, N.C., improved its offer in recent weeks by adding an alternative formula for calculating back-end bonuses, said recruiter Rick Peterson of Rick Peterson & Associates Inc. of Houston. The firm had used its own measure of revenue, which is higher than production, but its back-end formula proved confusing to recruits, he said.
Matthew Card, a spokesman for Merrill Lynch, declined to comment.
In some cases, UBS Financial Services Inc. of New York is still coming up with top packages, recruiters said. UBS had been the most aggressive last year with deals that went as high as 265%, according to recruiters.
Now UBS is closer to 200%, Mr. Sarch said.
UBS spokesman Kris Kagel declined to comment.
The new Morgan Stanley Smith Barney venture has adopted the existing deal used by Morgan Stanley of New York.
Morgan Stanley finalized its joint venture with Smith Barney, the brokerage unit of Citigroup Inc. of New York, on June 1.
MSSB is offering top recruits a nine-year deal worth up to 240% of trailing-12-month production in cash.
Incoming brokers can get 100% upfront, with another 140% paid out over three years if they bring over 100% of their assets and production. Less successful transitions earn a lower back-end bonus.
The new joint venture, which already has more than 18,500 brokers, isn't looking to add a lot of new representatives, Mr. Kronman said.
“The first thing [for MSSB] to address is retention,” he added.
Morgan Stanley spokeswoman Christy Pollak declined to comment.
Mindy Diamond, president of Diamond Consultants LLC in Chester, N.J., a longtime recruiter for wirehouses, said that she has been busy matching up brokers with independent firms.
“It's not so much about deals” in the independent channel, she said. “It's about building a brand, a legacy and equity” in your practice, Ms. Diamond said.
Recruitment deals at the independent-contractor firms are also holding up, said Larry Papike, president of Cross-Search, a Jamul, Calif., recruiting firm that works for independents.
The independents typically pay recruits 5% to 15% of annual production, plus a fixed amount to cover some startup costs, he said.
Like the major firms, independents are looking closely at business volumes from the past three to six months before making offers, Mr. Papike said. “They want to see what's happening with a book [of business] now, as opposed to 12 months ago,” he said.
E-mail Dan Jamieson at djamieson@investmentnews.com.
