Wirehouse Write Downs

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IndyAlly's picture
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Joined: 2006-10-12

All the negative press about the wirehouse write downs have to be pissing off the reps and their clients. Corporate America, we all know who eventually gets the squeeze. They'll start to cut back on back office support, raise quotas, lower payouts. Why stay with a company that takes 2/3 of your income?

Broker24's picture
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Joined: 2006-10-12

I think you're wrong.  Brokerage (ahhh, "Wealth Management") is the one shining light at all these wirehouses.  If anything, brokerage will get spun off somehow.  But I don't see those same mistakes (screwing brokerage) being made again this time around.  These firms can't afford to do that.

IndyAlly's picture
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Joined: 2006-10-12

I agree, brokers are doing a good job. My point is that they still give up 2/3 of their paycheck to their firm and now have to deal with the support staff being cut, putting more work on their plate and making them less productive. If a million dollar producer gets a 40% payout does their office, assistant, research and a big name on a business card cost $600K?

Cowboy93's picture
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Joined: 2005-05-10

Go back and do more research...a million dollar producer at a wirehouse (or any employee model firm) nets far more than 40% between cash, deferred comp, 401k match, staff, pension, etc etc (or equivalent LP, bonuses, etc at Jones). Actually even as low as a 400k producer--less than the median at wirehouses--can be near 50% all in. Granted it is not call cash comp to be allocated as she sees fit, but it aint bad.

Broker24's picture
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Joined: 2006-10-12

IndyAlly wrote:I agree, brokers are doing a good job. My point is that they still give up 2/3 of their paycheck to their firm and now have to deal with the support staff being cut, putting more work on their plate and making them less productive. If a million dollar producer gets a 40% payout does their office, assistant, research and a big name on a business card cost $600K?
 
At Jones, a $1mm producer is netting close to 60% in commissions and cash bonus.  Plus they get profit sharing (currently $1/$1 up to 5.8% this year), and there is no cap on the contribution (after you hit the IRS max, they cut you a check for the balance).  They also have deferred compensation.  I don't include LP distributions (since those are really investments) or trips (since it's taxable, you basically get a big discount on a REALLY nice trip).
So in reality, a million dollar producer's payout is about 60-65% (when you add profit sharing).  And if you are comparing to an indy situation, it is even a bit closer because the firm is paying rent, admin costs, technology costs, utilities, phone, paper, etc.  Not to mention they built your office for you.  Oh yeah, you get 1,000 free business cards every year, too .
The number is much lower when you are, say, a $300K producer.  Then it is more like 40-42% all-in.
 
Boy, I hope I didn't open a Pandora's box with this....

fritz's picture
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Joined: 2006-01-11

Can not imagine the losses and lawsuit exposure from all the Auction Rate Issues..will make the subprime look like a rounding error.

fastcar's picture
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Joined: 2007-02-20

Havent been here in a while..just popped in to see what reps are thinking about the economy.  Subprime..just the first inning?

Cowboy93's picture
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Joined: 2005-05-10

Broker24 wrote:  Oh yeah, you get 1,000 free business cards every year, too .

Yeah, but don't you only get 1000 business cards ONE TIME in your career that have a little picture of yourself on them?? Big strike against EJ there.

doberman's picture
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Joined: 2005-02-22

fritz wrote:Can not imagine the losses and lawsuit exposure from all the Auction Rate Issues..will make the subprime look like a rounding error.
 
It's already started. Lehman being sued for $1 billion+, with most of this constituting punitive damages.
 
Plaintiffs had $200 million+ in auction rate issues.  

Broker24's picture
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Joined: 2006-10-12

Cowboy93 wrote: Broker24 wrote:  Oh yeah, you get 1,000 free business cards every year, too .

Yeah, but don't you only get 1000 business cards ONE TIME in your career that have a little picture of yourself on them?? Big strike against EJ there.

No. You get them every year. And that was sort of a joke anyway (though we DO actually get free cards every year). Saves you maybe $25.

IndyAlly's picture
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Joined: 2006-10-12

How much are you giving to Uncle Sam? You're a W-2 employee vs. 1099, we get to write off ALL expenses and then pay taxes. It's how the rich get rich and stay rich.

Broker24's picture
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Joined: 2006-10-12

IndyAlly wrote:
How much are you giving to Uncle Sam? You're a W-2 employee vs. 1099, we get to write off ALL expenses and then pay taxes. It's how the rich get rich and stay rich.
 
I'm giving him a lot.  And you're right, I am a W-2 employee.  Thanks for clarifying, I have to do my taxes soon.
 
By the way, I technically write off most of my expenses too.  I pay 45-60% to Jones, which does not get taxed.  That pays for my office buildout, my admin, benefits, rent, utilities, systems, paper, phone, fax, furniture, license fees, AAMS course & exams, CFP course & exams, training, etc.  Not the same, true.  Your net payout will still be higher.  But I don't have to pay for any of those things that are included in the amount given to the B/D.  And most of the things I spend out of pocket get taken out pre-tax (postage, advertising, seminars, etc.).  There are very few expenses that I have to record on my 1040.

troll's picture
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Joined: 2004-11-29

As far as the writedowns I'm more concerned about the effects on us. I have to believe that at Cit/SB there are going to be massive cutbacks/layoffs. My guess, and only my guess, is that we'll see cutbacks in support, services, and probably managers. I would not be surprised if SB went to a complexing system like ML and MS have, to reduce the number of managers.
This will get interesting, to say the least.
 
Also regarding SB, what about this new Citi CEO, Vikram? Where is he? Where is the leadership in this firm? We dont hear a peep.

Broker24's picture
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Joined: 2006-10-12

That's the one thing I like at Jones.  No writeoffs, no layoffs, no cut in services or payout.  They are growing and hiring all the time.  Not that we aer somehow better than wirehouses, I am just glad we don't have to deal with that right now.

Greenbacks's picture
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Joined: 2004-12-21

Broker24 wrote:That's the one thing I like at Jones.  No writeoffs, no layoffs, no cut in services or payout.  They are growing and hiring all the time.  Not that we aer somehow better than wirehouses, I am just glad we don't have to deal with that right now.
 
Plus a 1,000 free cards a year. Man oHHHH man what a deal 
 
Almost forgot about the free koolaid

Edisfree's picture
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Joined: 2007-09-17

Citibank just told Smith Barney reps recently they are not going to honor the liquidity
everyone expected they would and have been in VRDMs.  Oh yea, they would be happy to "loan" the clients the money and charge interest to create liquidity.  So much for the monthly/quarterly/weekly put features. 
 
The reps are high & dry.   Sorry Mr client that million that I said you can get 3.6% tax free on and have monthly liquidity....well...not quite.  you really cant get at your money now.  opps, sorry about that.  C...what a train wreck that company has become.
 
 

IndyAlly's picture
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Joined: 2006-10-12

Jones has limited product, you have to walk the streets in rain, sleet or snow going door 2 door. I hope the old ladies atleast offer you some kool-aid (forgot you brought your own)  You guys just got company email in the last 18 months, how long has the firm been around?

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