Wall Street Recruiting Packages Put Customers At Risk


Huge recruiting bonuses for brokers may bode ill for customers. Large brokerage firms like Merrill Lynch and Morgan Stanley Smith Barney are offering some of the highest recruitment bonuses ever offered ? up to 330% of their previous year’s fees and commissions ? to entice reps who rank among the top fifth of their firms’ producers to come to work for them, reported Bruce Kelly in his November 15 InvestmentNews article, “Warring wirehouses add fuel to hiring fire.”

A little more than a year after Wall Street was walloped by the credit crisis, “[t]here’s still a great amount of competition and demand for the best-performing and targeted teams,” the article quoted Andy Tasnady, founder of Tasnady Associates LLC, a compensation consulting firm. “Firms still think it’s a profitable purchase for them to make,” he said. “Internal growth is off, so firms have to buy it.”

Some observers expect UBS to join the fray and provide details of a similar recruiting package as soon as this week. UBS’s new CEO, Robert McCann, was formerly with Merrill Lynch. UBS was rumored to have been considering recruiting bonuses of 365%, but that was revised downward to the range of 200% to 220%.

Some regional firms are also increasing their top offers, though at more modest levels than the major wirehouses. For example, last month, Raymond James & Associates Inc. increased its top deal to 100% of a rep’s previous year’s fees and commissions, from 80%, according to the article.

The recruitment packages are complicated and tied to a rep’s ability to increase business, however, so it is difficult for brokers to know how much they ultimately will receive. It would reportedly take five years for the rep to reach the top compensation level, which would paid out in the form of a forgivable loan over nine years.
In the case of the Morgan Stanley Smith Barney offer, the article said, reps need to increase assets and production by 50% over the first five years, with specific growth targets set for each year.

“This recruiting frenzy may ultimately harm customers,” says J. Boyd Page, senior partner of Page Perry in Atlanta. “Wall Street doesn’t just give away money. It expects something in return and that something is big fees and commissions. These deals put incredible pressure on brokers to generate fees and commissions at any cost. They create a significant conflict of interest between the individual broker and his customers.”

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