Two questions that should be on the mind of regional brokers are: “Would I want to work in a wirehouse, and will it serve my clients' needs?”

Why ask? Since wirehouses have acquired three major regional brokerage businesses — Advest by Merrill Lynch, Legg Mason by Smith Barney and Piper Jaffray by UBS — in the past year, with more such acquisitions expected, they could wind up working for a wirehouse whether they want to or not.

The single biggest difference between working for a wirehouse and a regional firm is the corporate culture. Brokers at Advest and Legg who have spent months with their new parent use terms like flexibility, autonomy, entrepreneurial spirit and access to top management in describing what they enjoyed before the takeover but don't any longer. Brokers at other regional firms like Morgan Keegan, Stifel Nicolaus and Janney Montgomery Scott would also use these terms to describe their working environment.

Immediately following the sales last year of Legg Mason and Advest, recruiters talking with those firms' advisors focused on cultural differences. They explained that a wirehouse offers a world-class organization and name and, perhaps, a greater depth in product, service and technology, but questioned whether the advisors and their clients would be comfortable in an environment that is, in many ways, the opposite of theirs.

In view of the potential advantages, many of the regional brokers shrugged their shoulders at the suggestion that the differences in corporate culture were a big deal. A typical response: “I'm being paid a handsome retention package to stay put.” That's particularly been true of the brokers at Piper, who are being offered especially good deals and are still on their wirehouse honeymoon.

Still, many others didn't shrug. They walked. Of the 515 Advest brokers working for the firm before the sale, 417 have left (see “Failure to Launch” in Registered Rep.'s May 2006 issue). Over at Legg Mason, about 20 percent of the brokers left before Smith Barney took over officially. Were they wrong? Here's a look at three brokers who have stayed put — so far.

Merrill's Chains

A million-dollar Advest producer stayed because, if he left within the first 18 months of the sale, he was going to lose a huge amount of deferred compensation. Six months later, he believes his clients are doing just fine because Merrill has waived client fees for a period of 12 months.

But that doesn't mean he's happy. For one thing, his access to top management has been lost. In fact, his branch manager has accused him of violating the chain of command by first calling the regional manager, not himself, with a question. “It takes days instead of minutes to get answers to questions,” he says. “And believe it or not, in some ways Merrill's technology is inferior to Advest's.”

When the 12 months are up, there will be a few turns for the worse. He will lose all his accounts worth less than $100,000. They will be turned over to a call center and he will no longer be paid on their business.

Also, his clients will be charged an annual account fee, regardless of the size of the account. Brokers may be able to get a waiver, but only on rare occasions. This, too, is different from the way business was done at Advest, where management gave brokers wide latitude in determining fees.

UBS Restrictions

A $2 million Piper Jaffray producer on the West Coast has had a successful 10-year career, running a hybrid book of business that's part retail, part mid-market institutional. He's staying, but he's wary of UBS policy. It doesn't allow its current brokers to maintain both retail and institutional business and, although UBS has promised to make exceptions for him and other Piper brokers with hybrid books, he thinks this exception will not last forever.

He has heard stories about the $1 million New York UBS producer who recently lost $600,000 in production to an institutional salesman because the firm says their institutional division can better serve the client. The payout to an institutional salesman would be lower than to a retail broker, costing UBS less money.

There's likely to be pain on the retail side, too. Clients will have to pay ticket charges of about $12 for every transaction the broker makes for them — no exceptions.

Smith Barney's Codes

A successful Legg Mason producer from Pennsylvania feels handcuffed to Smith Barney because of the amount of his client assets — $40 million out of $120 million — that are in Legg Mason funds. These assets are not portable.

Still, there's a lot for him not to tolerate for long at Smith Barney — both big and small. He chafes under the dress code that requires brokers to wear suits everyday and what he feels is too much paperwork. He also doesn't like the fee structure for clients. There is a limit on how much of a discount he can offer his clients. If he offers more than the limit, he doesn't get paid for the transaction.

Whose firm will be acquired next? Further compression of the industry is likely. Complacency will not work for regional brokers whose firms may be targets for acquisition. Look carefully for the corporate culture that best fits you and your clients.

Writer's BIO: Mindy Diamond founded Chester, N.J.-based Diamond Consultants, which specializes in retail brokerage and banking recruiting www.diamondrecruiter.com

Animal Spirits
A look at selected broker/dealer deals.
Date Acquirer Target Deal Value (millions)
02/2005 Janney Montgomery Scott Parker/Hunter Inc. n/a*
06/2005 Ameritrade TD Waterhouse Group $2,869
09/2005 Merrill Lynch Advest 400
09/2005 E*Trade Financial Brown Co. 1,600
12/2005 Smith Barney Legg Mason 3,700
04/2006 UBS Piper Jaffray 500
* Undisclosed amount
Source: Thomson Financial