Firms Paying Big for Recruits & Retention

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troll's picture
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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; brett.philbin@ dowjones.com
 

CDO Squared's picture
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guess they saying fu to congress and obama nations  

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

fritz's picture
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Go_Long wrote: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?

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

today1's picture
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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?

troll's picture
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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.
DEFECTIONS
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.

HymanRoth's picture
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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.

Broker Fee's picture
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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.
 

Akkula's picture
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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. 

GoodTimes's picture
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That's when the whores come in, shaking their little behinds for all the men...

burtonfinancial1's picture
Joined: 2008-09-30

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

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

MrBig's picture
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Please tell me that was a poke at a little humor?

jkl1v1n6's picture
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GoodTimes wrote: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!

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HymanRoth wrote: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. 

troll's picture
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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.

MrBig's picture
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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!

jkl1v1n6's picture
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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. 

MrBig's picture
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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.

Sportsfreakbob's picture
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If these firms were making money, i mean really really making profit, then the money paid for retention would be coming fom profit. But they arent. You can furk around with all the smoke and mirrors they want, fi there is no profit, then the money represents a deficit, and the deficits are funded by TARP. So call it whatever you want, its TARP.

kaap's picture
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Using a Recruiter - I couldn't agree more with the earlier post regarding the need to use a recruiter. My partner and I recently moved from a large wirehouse to UBS and the consultative and professional approach of our recruiter helped us immeasurably to make the best decision for us and to maximize the economics. I am posting his name because he was so helpful to us that I truly think you would be doing yourself a disservice not to at least interview him before making a decision on how to proceed with making a move (we interviewed several and were very meticulous about the process). His name is Jordan Schultz and he is with Leitner Sarch and his number is 914-682-4000.He helped us navigate the landscape of wirehouses, regionals and independents, never showed any bias, negotiated on our behalf, gave us excellent perspective and advice and was a consummate professional. If you have questions you can email me privately. We are very happy with the outcome of the process Jordan helped us through and I am sharing this information only to be helpful to others FAs as they navigate these difficult times. Good luck.

lelonyc's picture
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This is great if you are working for these firms and producing. I just watched again this morning and all the news stations were really pumping this story. Dont want to sound political and like a crazy person, but it just confirms the whole globalist movement and how the banks really control this country and can do and get away with whatever they want. My cousin is really trying to get me in at Smith Barney so I will see what happens, I could have been working there in September but I did not like the way they approached getting me licensed. It was a waiting game and I did not want to sit on my hands. So I went out and got licensed and now I am waiting for them to hopefully open the doors again for me.

HymanRoth's picture
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lelonyc wrote:This is great if you are working for these firms and producing. I just watched again this morning and all the news stations were really pumping this story. Dont want to sound political and like a crazy person, but it just confirms the whole globalist movement and how the banks really control this country and can do and get away with whatever they want. My cousin is really trying to get me in at Smith Barney so I will see what happens, I could have been working there in September but I did not like the way they approached getting me licensed. It was a waiting game and I did not want to sit on my hands. So I went out and got licensed and now I am waiting for them to hopefully open the doors again for me. I saw black helicopters flying over Wall Street yesterday.... I think the Pope is behind all this somehow.

MrBig's picture
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Sportsfreakbob wrote: If these firms were making money, i mean really really making profit, then the money paid for retention would be coming fom profit. But they arent. You can furk around with all the smoke and mirrors they want, fi there is no profit, then the money represents a deficit, and the deficits are funded by TARP. So call it whatever you want, its TARP.

If I am making the firm $1,000,000 and only getting $500k for myself every single year, then it's worth it for the firm to pay me to keep making them that money. The firm as a whole being profitable is not what I'm paid for. I do everything I can, and the remainder is up to the people that are paid significantly more than I am to do so. I do more than my part for the firm's profit.

Anyone saying that my own income should be compromised because some jackass couldn't run a company properly, is in the wrong business. My business is already being impacted by the incompetency of the people running my firm and yes, they need to compensate me for dealing with that and staying there. What you're saying is like saying to you that since that rookie in your office didn't make it, your payout is going to drop by 20%. It's unrelated to what you do and what you bring to the table.

burtonfinancial1's picture
Joined: 2008-09-30

kaap wrote:Using a Recruiter - I couldn't agree more with the earlier post regarding the need to use a recruiter. My partner and I recently moved from a large wirehouse to UBS and the consultative and professional approach of our recruiter helped us immeasurably to make the best decision for us and to maximize the economics. I am posting his name because he was so helpful to us that I truly think you would be doing yourself a disservice not to at least interview him before making a decision on how to proceed with making a move (we interviewed several and were very meticulous about the process). His name is Jordan Schultz and he is with Leitner Sarch and his number is 914-682-4000.He helped us navigate the landscape of wirehouses, regionals and independents, never showed any bias, negotiated on our behalf, gave us excellent perspective and advice and was a consummate professional. If you have questions you can email me privately. We are very happy with the outcome of the process Jordan helped us through and I am sharing this information only to be helpful to others FAs as they navigate these difficult times. Good luck.I agree. Been there, done that. I know Sarch, his firm is solid although they have not been mine. There's a load of recruiters out there and 5 of what I'd say are long time very reputable firms. Sarch, Peterson, Willis, Diamond,seem to be most often quoted. There are some bigger firms who's names you'd know but I've found they tend to be lead 'squatters' and not really recruiters. Loads of cold callers who basically take your name, pass it off and you never hear from them again.  Personally I like Willis Consulting- Dave and Pat in their Scottsdale office are real pros. Those guys are very up on what's happening and saved me a ton of leg work and mental fruhstration. 480-361-9490 I think

burtonfinancial1's picture
Joined: 2008-09-30

One more thought on this. Based on my experience in my 'former' career some years ago. I've come to appreciate the fact that my phone rings pretty often with RECRUITER cold calls. It's a damn good sign that you're 'OK' and you have options whether you want them now or not. It's when the recruiter calls STOP and you never get them that you know you're in trouble. A clear sign of a drying 'niche'. Ask your IB friends who's phones were burned up for years with mega offers. Those guys are now dropping CVs by the hundreds and getting no love.

troll's picture
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FA just joined UBS and was reportedly paid 220% -- he was a 600K producer.

Sportsfreakbob's picture
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MrBig wrote: Sportsfreakbob wrote: If these firms were making money, i mean really really making profit, then the money paid for retention would be coming fom profit. But they arent. You can furk around with all the smoke and mirrors they want, fi there is no profit, then the money represents a deficit, and the deficits are funded by TARP. So call it whatever you want, its TARP.

If I am making the firm $1,000,000 and only getting $500k for myself every single year, then it's worth it for the firm to pay me to keep making them that money. The firm as a whole being profitable is not what I'm paid for. I do everything I can, and the remainder is up to the people that are paid significantly more than I am to do so. I do more than my part for the firm's profit.

Anyone saying that my own income should be compromised because some jackass couldn't run a company properly, is in the wrong business. My business is already being impacted by the incompetency of the people running my firm and yes, they need to compensate me for dealing with that and staying there. What you're saying is like saying to you that since that rookie in your office didn't make it, your payout is going to drop by 20%. It's unrelated to what you do and what you bring to the table. I'm not saying that you (or I) shouldnt be rewarded for our production. Believe me, i have no problem with retention, recruiting or whatever. I am just saying, its tarp money. There is nothing wrong with that. The govt is giving this money to these firms and they are using it to stabilize their businesses, via retention and recruiting. Its still tarp money. I have more of a problem with the media and congressmen who are grandstanding without understanding how our business works.

troll's picture
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Tarp money?   Do this, look up what the TOTAL expenses were for WFC last year, and their total income, and then tell me how you can assign tarp money to any specific expense item. 
 
It's interesting how some like to take a portion of money and draw a direct line from one item to another and say that is what it specifically went for.  
 
WFC loaned out multiple times the amount the were forced to take in Tarp money...
 

troll's picture
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FEBRUARY 14, 2009

Morgan Stanley, Citigroup to Give Brokers Big Retention Fees

 

Building the biggest brokerage firm on Wall Street is proving costly to Morgan Stanley and Citigroup Inc., which are planning to pay brokers about $3 billion to keep them from being poached away from the joint venture, people familiar with the matter said.

Sportsfreakbob's picture
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Go_Long wrote:Tarp money?   Do this, look up what the TOTAL expenses were for WFC last year, and their total income, and then tell me how you can assign tarp money to any specific expense item. 
 
It's interesting how some like to take a portion of money and draw a direct line from one item to another and say that is what it specifically went for.  
 
WFC loaned out multiple times the amount the were forced to take in Tarp money...
 You cant. For that matter you cant assign TARP money to loans being given out either.But whats relevant is that these firms are losing money and it is being replaced with money from the government. So the retention is coming from somewhere right?

Wyatt Earp's picture
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After 15 years in the industry on many levels I can tell all of you that they are paying big
$$$$ retention packages now, but will, in  the future, alter the payout to pay for it... that is why they are letting the lower end producers going - they are trying to consolidate the account base.
 
Margins are shrinking. Account sizes are shrinking. Payout will start shrinking at the wirehouses.
 
I guarantee it.
 
If you want to protect your payout - start looking at going independant.

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Morgan Stanley and Citigroup mull spending $3bn to retain brokers
Morgan Stanley and Citigroup, which are attempting to set up the biggest US brokerage firm, are planning to pay brokers nearly $3bn (€2.3bn) to prevent them from being poached away from the joint venture, sources said, according to report in The Wall Street Journal.
');
-->Morgan Stanley, whose management will run the joint venture, is weighing offering retention payments to top-producing brokers who are joining the firm’s new wealth-management tie-up with Citigroup's Smith Barney division.
The payments range from 50% to nearly 260% of a broker's annual production, which can exceed $10m depending on the size of the individual broker's business, the WSJ report said.
 

Retention deal same for Morgan Stanley, Smith Barney reps
By Mark Bruno February 13, 2009
Anxious advisers at Morgan Stanley and Smith Barney have received some comforting words from James Gorman, the co-president who will oversee the two brokerage firms when they form a joint venture later this year: “We said we would be providing a retention award, and we will be providing one,” Mr. Gorman said in a conference call with reps this week.
Mr. Gorman said that he has received a number of e-mails from reps about retention awards since plans for the joint venture were unveiled Jan. 13.
At the time, Mr. Gorman had stated that reps would have the specifics of their retention payments within 30 days. Since then, however, no details have been given to reps.
The final details of these payments will now be outlined by the end of February, Mr. Gorman told reps during this week's call, a snippet of which made its way onto the Huffington Post website.
Some of the components of the retention awards, however, were disclosed on the call. For one, the payments will be identical for both Smith Barney and Morgan Stanley advisers. “What's fair and equitable is to treat everybody on the same basis,” Mr. Gorman said.
Also, he noted that the retention payments will be based on an adviser's production for 2008, not 2009, as some reps had feared. “I think I can hear you clapping from here in New York,” Mr. Gorman said. “You should be clapping because frankly that is a very generous and thoughtful decision that we have made.
“We spent a lot of time kicking this around. We could easily have done it from the point of closing, which is obviously going to be somewhere in the latter half of this year or around the middle of the year. But we just decided... that it was right thing to do, to give you that certainty that it would be based off '08. [2009] is a very difficult year and we understand that it clearly would have been cheaper to have done it off '09, but we think it's the right thing to do, and we've made that decision.
“So that degree of anxiety, which many, many of you have e-mailed me about,” Mr. Gorman continued, “is now off the table.” Morgan Stanley and Smith Barney both of New York have reportedly set aside $2 billion to $3 billion for retention payments. A spokeswoman for Morgan Stanley was not immediately available for comment.

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