WSJ article about brokers leaving the big wires

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More Brokers Flee Big Firms, Taking Investors With Them
By E.S. BROWNING
Independent
financial advisers are gaining ground from Wall Street brokers in the
competition to manage more than $5 trillion in Americans' savings.
The ranks of brokers at major Wall Street firms have been shrinking,
along with those firms' share of the retail-investing market. At the
same time, independent advisers are growing in number and market share.
The financial turmoil of the past 18 months is fueling the shift.
Shaken by the collapse of some Wall Street firms and the tarnished
reputations of others, more big-firm brokers are breaking away to
manage money on their own, taking clients with them.


Brett
Sharkey, Eric Thurber and Fred Molfino, who oversaw $740 million in
business at Morgan Stanley Smith Barney, left in August to set up Three
Bridge Wealth Advisors in Menlo Park, Calif. Many clients followed.
Eric
Thurber and two associates, who oversaw $740 million at Morgan Stanley
Smith Barney, set up their own business in August. Many clients
followed them.
After the collapse of Lehman Brothers in the fall of 2008, Mr.
Thurber says, "we realized that we could be at risk" even at a major
firm.
Boston research firm Cerulli Associates last year projected that
brokers leaving major firms would take $188 billion in client accounts
with them in 2009, the first year Cerulli has tried to measure that
movement of money. Cerulli expects the trend to continue this year.
Other data suggest that big firms saw money flow out in 2008, too.
Financial statements from the biggest brokerage firms, including UBS AG and Bank of America
Corp.'s Merrill Lynch Wealth Management, show a collective net outflow
in 2008 of about $20 billion in client money, counting both money
removed by departing brokers and money withdrawn by clients whose
brokers didn't leave. Those figures reflect client actions, not market
gains and losses.
The big firms say they are poised to rebound and that they wanted to
push out many of the departing brokers because they weren't bringing in
as much profit as others. "The majority of departures have been people
with below-average revenue production," says a spokeswoman for Morgan
Stanley Smith Barney.
Major Wall Street firms still handled 48% of the money from
individual investors under management at the end of 2008, while
independent advisers handled 19%, according to Cerulli. But Cerulli
forecasts that by 2012, the big-firm share will be down to 41%, while
the independent advisers' share will be more than 23%. The balance of
the money is managed by smaller brokerage firms, insurance companies
and banks.

Journal Community

The
number of brokers serving individual clients at major firms fell 14% to
less than 55,000 in the three years ending in December 2008, while the
number of independent financial advisers rose 29% to 33,000, Cerulli
Associates says.
Mr. Thurber, the Morgan Stanley Smith Barney broker who jumped ship,
says he hadn't considered a change until Lehman collapsed and he saw
friends at that firm suffer. His employer then was Smith Barney, which
hadn't yet merged with Morgan Stanley and was part of Citigroup
Inc., whose stock was plunging. He and his two colleagues, whose
brokerage-firm salaries were well into the six figures, manage money
for entrepreneurs and venture capitalists in Silicon Valley.
They secretly planned their move for nine months before they left.
Mr. Thurber recalls a tense debate in the dining room of one of his
partners about whether they could afford to abandon their salaries and
bonuses.
"It certainly gave each of us pause about whether it made sense for
us to walk away," he says. Initially, the cost of starting and running
a business would reduce their incomes, he says. In the longer run, he
says, "we did the analysis that, counting equity in our new firm, if we
did all the hard work, it would be worth it."
At their new firm, Three Bridge Wealth Advisors in Menlo Park,
Calif., they are free of certain constraints, Mr. Thurber says. At big
brokerage firms, brokers can sell only financial products approved by
their firms. Independent advisers face no such restrictions.
A Morgan Stanley spokeswoman says that turnover among brokers overseeing larger amounts of money "is at historic lows."
Not all brokers leaving major firms are going it alone. Independent
firms say they're seeing an uptick in interest from big-firm brokers.
"We are receiving unsolicited resumes from senior people" at major
brokerage firms, says Steven Giacona, founder of wealth-advisory firm
Round Table Services in Westfield, N.J., which oversees about $700
million. "I have been talking to people who never imagined they would
be talking about these things. But these events have put them and their
clients in a situation where they feel they need to make a change." So
far, he says, he has hired one big-firm broker.
Brokerage firms are fueling the movement by pushing out lower-volume
brokers. A typical strategy is to cut compensation, a process known as
putting brokers "in the penalty box." Lower producers who had been
taking home 40% of their fees and commissions might be told they now
will keep only 20%. Their realistic choices: boost revenues, move to a
smaller firm or go independent.
Tim Noonan, who faced a compensation cut as a broker in Merrill's
Atlanta office, left in February 2009 with most of his clients. He
formed Noonan Capital Management with about $40 million in client
money, he says.
Mr. Noonan says he didn't like being pressed to boost revenues. He
also didn't like working in a system where he was paid more to put his
clients into stocks than into certificates of deposit. At his own firm,
he charges clients a flat percentage of money under management, no
matter how it's invested.
"I wanted to own my own business, create my own value," he says. "I can will it to my children. I can sell it."
Independent advisers have a powerful ally in the competition with big firms: discount brokerage firms.
Independent advisers need someone to conduct trades, store
securities, keep track of client accounts and perform other back-office
jobs. The discount-brokerage operations of Charles Schwab Corp.,
Fidelity Investments and TD Ameritrade Holding Corp., among others,
have built big businesses doing those things for independent advisers.
As the trend toward independence grows, the discounters are redoubling
efforts to persuade brokers to go independent.
Tom Cantillon leads a group in Schwab's New York office that urges
brokers to go independent and bring their business to Schwab. He and
his people phone brokers at their offices, sometimes early in the
morning or at night in hopes the brokers will pick up directly. Mr.
Cantillon says he asks: "Have you ever considered a different model for
your business?"
Discount firms are using emails, seminars and junk mail to lure
brokers into independence. They offer free help with paperwork, free
software, and reduced-cost or free trades during the transition period.
If breakaway brokers aren't comfortable creating their own businesses,
the discount firms will help them, for no charge, find existing
independent financial firms that want new associates.
Schwab held workshops around the country last year to show brokers
how to go independent. Fidelity hired a senior executive from Morgan
Stanley to handle its business with independent advisers, including
attracting them from brokerage firms. In the first three quarters of
2009, Fidelity says, breakaway brokers brought it more than $6 billion
in new money to be managed, equaling the amount it received in all of
2008.
Brian Doe left Merrill in 2009, urged on by Schwab recruiters.
Before the financial crisis hit, he and his clients liked being at a
big, established firm, Mr. Doe says. After Merrill teetered and was
sold to Bank of America, Mr. Doe, a nine-year Merrill veteran who
managed more than $50 million for 90 clients, rethought his position.
"The day that a company of that tenure and stature can get sold off
to a bank over a weekend is a little disconcerting to someone at my
career level," says Mr. Doe, who is 42 years old. "I was spending a lot
of time explaining what the firm was doing, at a time when the market
was down and people's portfolio values were careening."
Unhappy to see Merrill cutting support staff, he began speaking with
others in the business and discovered that the man who had helped him
start at Merrill had founded his own firm, Atlanta's Gratus Capital
Management. Mr. Doe joined Gratus in February 2009.
Steven Schwalb, a client, says he was happy with Mr. Doe but wary of
the hassle of moving his money from Merrill. His mortgage-banking
business was chaotic and he was helping care for newborn twins, so he
didn't follow Mr. Doe to Gratus.
"We had a lot going on in our lives, so the last thing we wanted to
do was upset anything else," he says. "We weren't really sure it was
the right move for us to go to a smaller company."
But he says he didn't develop as good a relationship with his new
Merrill broker, so he got back in touch with Mr. Doe and moved his
money to Gratus. At Gratus, Mr. Schwalb says, he has access to a wide
range of mutual funds and other investments, with lower commission
costs than at big brokerage firms. The Schwalbs pay Mr. Doe an annual
fee to monitor their finances, including advising them on all
investment and financial-planning decisions.
A Bank of America spokeswoman says clients are benefiting from the
Merrill acquisition, internal surveys indicate that they are satisfied,
and "we continue to attract and retain highly successful advisers."
Some banks are trying to take advantage of the changes. The brokerage arm of Wells Fargo
& Co., which acquired Wachovia Securities in late 2008, is offering
brokers who want to go independent the chance to work with it on a
contract basis, even if they are former Wells Fargo brokers. They sell
financial products through Wells Fargo's trading desk but operate as
independent businesses. Wells Fargo now works with about 1,000
independent advisers.
Officials at other brokerage firms say the shift toward independent
advisers is something they can reverse. Many brokers are more
comfortable staying at big firms, which take care of product support
and back-office issues. Big firms say they are retaining brokers they
want to keep, notably those who handle wealthier investors.
"I think that we have capabilities in this business to be able to do
things for clients that the boutiques will just not be able to do,"
Robert McCann, chief executive of UBS's U.S. brokerage arm, said at a
recent conference.
Some in the brokerage business argue that the Madoff Ponzi-scheme
scandal will frighten clients of smaller firms, pushing them toward
brand-name brokerages. They also say that if money managers face new
regulation, as has been discussed, smaller firms might be less
well-equipped to deal with the burden.
That doesn't appear to be diminishing interest among brokers contemplating change.
Ralph Courage, a broker in Norfolk, Va., left UBS to set up an
independent firm in 2008. "I have received many calls from top
investment folks at brokerage firms around the country," he says, "who
have heard that we have made this move, saying, 'We would really like
to do this and tell me all about it.'[nbsp ]"

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B24
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The exodus is overblown in my opinion.  The wirehouses still have a good strategy for keeping the assets (at least among the wires, even though there are musical chairs).
 
However, I think the landscape will continue to evolve over time as large indy firms get larger, as ensemble RIA firms get larger and are able to hire and train their own (as opposed to just getting wirehouse breakaway brokers).  I think in the future, you will still have 3 or 4 wirehouse firms, but they will be leaner, and you will have many "mid sized" RIA firms with 250-1000 FA's around the country.  Firms like Fisher Investments is a good example.  Many of these firms hire rookie FA's and pay them a salary plus bonus, since most of the biz is fee-based or fee-only, and the firms have a great process in place for bringing in assets, they just need "planners" and advisors to carry out the firms' strategy (managed money, model portfolios, etc.).  The FA's of the future will look more like financial planners than "stock brokers".

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Who is the big winner in the Indy channel? LPL? RayJay?

B24's picture
B24
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Actually, they both are, but the bigger winners long-term will be in the RIA space.

NYCTrader's picture
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Agree with your take.  The wires will continue their movement towards teams and focusing on $1 million+ accounts.  Yes, there has been a backlash against the wires (by both clients and brokers), but there will always be those clients who want their money at a big name firm that has ads all over TV and analysts all over CNBC.   Same thing with certain brokers.  They love having that name recognition behind them.  The wire culture is not for me (or my clients), but everyone is different.It'll be interesting to see what happens if/when there is consolidation in the RIA space and a big player emerges.  Wonder what the culture will be like.   

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nyc: a bit too much happy talk here.   

vix 19.

might a get a little bump here

Anonymous's picture
Anonymous

Jan
 
we always do
 
buy in again after 10 down

NYCTrader's picture
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Shania Twain wrote:nyc: a bit too much happy talk here.   

vix 19.

might a get a little bump hereI still don't like this rally at all.  No confidence in it whatsoever.  Bought puts on China in December.  Ticking time bomb.  Nice to see Chanos is on board.http://dealbook.blogs.nytimes.com/2010/01/07/contrarian-investor-predicts-crash-in-china/?scp=2&sq=china&st=cse

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The rumor mill is at work again.  Heard a huge producer and his family left WFA/AGE a couple of days ago in Michigan.  Also took some of the support staff and opened up a Stifel shop.  Heard the entire family had AUM of about 500mm.  If this is all true what a huge blow to that WFA market.  Anyone verify this?

Anonymous's picture
Anonymous

Bud Fox wrote: The rumor mill is at work again.  Heard a huge producer and his family left WFA/AGE a couple of days ago in Michigan.  Also took some of the support staff and opened up a Stifel shop.  Heard the entire family had AUM of about 500mm.  If this is all true what a huge blow to that WFA market.  Anyone verify this?

why would it not be true..........? big deal

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not that it wouldn't be true. just that I have not heard of any family/team with that many AUM leaving a WFA office yet.  we are only 2 years into the 5 year cash retention part of the deal and most everyone has spent all of their money and can't leave unless they get a huge up front deal.

Anonymous's picture
Anonymous

I think that is going on a lot of places right now

some new deals are really rich

I heard

DD's picture
DD
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mlgone wrote: I think that is going on a lot of places right now

some new deals are really rich

I heard

janitors getting offers these days, MLgay?

Anonymous's picture
Anonymous

DD wrote: mlgone wrote: I think that is going on a lot of places right now

some new deals are really rich

I heard

janitors getting offers these days, MLgay?

ur mom's said so?   nah........she's on the retainer......crack gurl

DD's picture
DD
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Tell us about your offer to clean toilets at JP Morgan, ML. Did they offer you a 30min or 60min lunch break?

Tropic Lightning69's picture
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There is some truth to your comments. The individual in question was the branch manager of an office outside of Detroit. This guy had been with Edwards since Edwards bought another firm in 1977. It was a good office. He took some other guys with him, although not all. Now the questions is whether WFA will keep this office or roll it into another office. His leaving, along with the others,  cut the heart out of that office. And, it will never be the same. I know him personally, and he was quite unhappy. The reason that it didn't happen sooner was that  SF had purchased a number of offices from UBS in 2009, and they were not opening new offices until they digested the purchase from UBS. Lastly, the BOM of another Michigan office was heard to say something to this effect...." is SF going to back up a truck to all of the other WFA offices and empty them out...?" Finally, if the upper management of WFA is reading this, those guys that just left did not trust the management of WFA. Take note WFA, you have no credibility with the AGE brokers. The morale, at least in Michigan, is at the bottom of the barrel.    

Anonymous's picture
Anonymous

DD wrote: Tell us about your offer to clean toilets at JP Morgan, ML. Did they offer you a 30min or 60min lunch break?

Fuk..........I got 15.......was 30 on the table?

DD's picture
DD
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mlgone wrote: DD wrote: Tell us about your offer to clean toilets at JP Morgan, ML. Did they offer you a 30min or 60min lunch break?

Fuk..........I got 15.......was 30 on the table?

Ask your mom

shredder's picture
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Tropic Lightning69 wrote:There is some truth to your comments. The individual in question was the branch manager of an office outside of Detroit. This guy had been with Edwards since Edwards bought another firm in 1977. It was a good office. He took some other guys with him, although not all. Now the questions is whether WFA will keep this office or roll it into another office. His leaving, along with the others,  cut the heart out of that office. And, it will never be the same. I know him personally, and he was quite unhappy. The reason that it didn't happen sooner was that  SF had purchased a number of offices from UBS in 2009, and they were not opening new offices until they digested the purchase from UBS. Lastly, the BOM of another Michigan office was heard to say something to this effect...." is SF going to back up a truck to all of the other WFA offices and empty them out...?" Finally, if the upper management of WFA is reading this, those guys that just left did not trust the management of WFA. Take note WFA, you have no credibility with the AGE brokers. The morale, at least in Michigan, is at the bottom of the barrel.    
SF is making some very strategic openings.  Most of the WFA Long Island branches are a shell of their former self.  Mo. and the St. Louis area are easy pickings for Ben & Co, and SF.  No one that I know trusts Danny and the boys, they have used up what little credibilty they have and moral is low at all AGE branches.  Past experiance as guide, they will roll up those smaller branches in time.  Michigan has had a moral problem for some time now.  Apparently, the Regional Pres. is a total a-hole, just like the NE Regional.

tdude's picture
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The current RP over MI is a good guy but he just took over. The previous RP who I think is out of Chicago is the puffed up arrogant one. In either case this isnt the RP's fault...its 2.8 yrs of zilch mgmt higher up the ladder.

tdude's picture
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perhaps a refresher course is needed here. It goes like this.
1) loss of trail from mmkt
2) loss of annual sales bonus (significant)
3) loss of big 401k pop (significant)
4) ticket charges
5) higher min ticket
6) haircut on CAAPS, Laffer etc. (significant for some)
7) loss of branch autonomy (big for managers)
8) Br mgr pay cut by 50-60% "    "    "
9) loss of credibility
10 WB blowup (old news now but credibility issues linger)
11)Perception the Wells is getting between clients and FA's
12)haircut for offit/evergreen (gallatin accounts going forward)

New Issues:
1) bi weekly pay...setting us up as bank brokers is next
2) 25% witholding from dollar one (affects guys under 750k)
   seriously a multi trillion dollar company cant fix that-what a
   joke

Ben and Co and SF are the likely alternatives for the old days. Ive visited both. SF is a little more developed now but give Tad another 5-6 mos and his platform will be stellar. Culture is already their. Havent made a move but BFE would be my 1st choice given a few more months working out some minor glitches.   

shredder's picture
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FiNet is where I am heading in May 2010.
 

Tropic Lightning69's picture
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The RP for Michigan and Ohio is a former AGE RP, his office is in Cincinnati. He is a decent guy. The Wachovia RP that Michigan had when WB took over AGE was the biggest loudmouth anyone can imagine. The first time I met the s.ob., I thought to myself, I ought to quit right now! Mr. Loudmouth likes to tell everyone that he was a million dollar producer with Merrill in Chicago. What Mr. Loudmouth didn't say was that he was the 7th man of a 7 man team.  Million dollar producers don't walk away from a book to be regional manager that can get fired at anytime.    

mnbondguy's picture
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It obviously was an AGE office, which one?

shredder's picture
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Tropic Lightning69 wrote:The RP for Michigan and Ohio is a former AGE RP, his office is in Cincinnati. He is a decent guy. The Wachovia RP that Michigan had when WB took over AGE was the biggest loudmouth anyone can imagine. The first time I met the s.ob., I thought to myself, I ought to quit right now! Mr. Loudmouth likes to tell everyone that he was a million dollar producer with Merrill in Chicago. What Mr. Loudmouth didn't say was that he was the 7th man of a 7 man team.  Million dollar producers don't walk away from a book to be regional manager that can get fired at anytime.    
That's the guy I am talking about.

Gaddock's picture
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shredder wrote:Tropic Lightning69 wrote:There is some truth to your comments. The individual in question was the branch manager of an office outside of Detroit. This guy had been with Edwards since Edwards bought another firm in 1977. It was a good office. He took some other guys with him, although not all. Now the questions is whether WFA will keep this office or roll it into another office. His leaving, along with the others,  cut the heart out of that office. And, it will never be the same. I know him personally, and he was quite unhappy. The reason that it didn't happen sooner was that  SF had purchased a number of offices from UBS in 2009, and they were not opening new offices until they digested the purchase from UBS. Lastly, the BOM of another Michigan office was heard to say something to this effect...." is SF going to back up a truck to all of the other WFA offices and empty them out...?" Finally, if the upper management of WFA is reading this, those guys that just left did not trust the management of WFA. Take note WFA, you have no credibility with the AGE brokers. The morale, at least in Michigan, is at the bottom of the barrel.    
SF is making some very strategic openings.  Most of the WFA Long Island branches are a shell of their former self.  Mo. and the St. Louis area are easy pickings for Ben & Co, and SF.  No one that I know trusts Danny and the boys, they have used up what little credibilty they have and moral is low at all AGE branches.  Past experiance as guide, they will roll up those smaller branches in time.  Michigan has had a moral problem for some time now.  Apparently, the Regional Pres. is a total a-hole, just like the NE Regional.
 
I think it's clear that WFA could care less. They make their money from bank deposits. I'll bet in 5 years or less WFA has nothing but bank brokers. Danny loves em. They can get fired, they don't bitch and moan and they get paid far far less. I think a lot of the consolidation is pretty much over for some time. Another year or two the remaining firms will show their colors.

Bud  Fox's picture
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Tropic Lightning69 wrote:There is some truth to your comments. The individual in question was the branch manager of an office outside of Detroit. This guy had been with Edwards since Edwards bought another firm in 1977. It was a good office. He took some other guys with him, although not all. Now the questions is whether WFA will keep this office or roll it into another office. His leaving, along with the others,  cut the heart out of that office. And, it will never be the same. I know him personally, and he was quite unhappy. The reason that it didn't happen sooner was that  SF had purchased a number of offices from UBS in 2009, and they were not opening new offices until they digested the purchase from UBS. Lastly, the BOM of another Michigan office was heard to say something to this effect...." is SF going to back up a truck to all of the other WFA offices and empty them out...?" Finally, if the upper management of WFA is reading this, those guys that just left did not trust the management of WFA. Take note WFA, you have no credibility with the AGE brokers. The morale, at least in Michigan, is at the bottom of the barrel.    
Anyone know if this was a legacy AGE office? or was it a Wach office and the AGE guys got x-ferred into it... I have heard there have been many closures of legacy AGE offices and being merged into Wach offices...

Bud  Fox's picture
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shredder wrote:Tropic Lightning69 wrote:The RP for Michigan and Ohio is a former AGE RP, his office is in Cincinnati. He is a decent guy. The Wachovia RP that Michigan had when WB took over AGE was the biggest loudmouth anyone can imagine. The first time I met the s.ob., I thought to myself, I ought to quit right now! Mr. Loudmouth likes to tell everyone that he was a million dollar producer with Merrill in Chicago. What Mr. Loudmouth didn't say was that he was the 7th man of a 7 man team.  Million dollar producers don't walk away from a book to be regional manager that can get fired at anytime.    
That's the guy I am talking about.
I heard this guy had the great lakes taken away from him and he was given a lesser territory in the central or home region. Not sure if it was because of his arrogant personna or what.

Hydeho's picture
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"2) 25% witholding from dollar one (affects guys under 750k)
   seriously a multi trillion dollar company cant fix that-what a
   joke
"Outside software, Peoplesoft. in the process of being rewritten and then has to be tested.Ever written or updated a large software program? Didn't think so. my brother-in -law does it for a living. Not an easy process.

shredder's picture
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2) 25% witholding from dollar one (affects guys under 750k)    seriously a multi trillion dollar company cant fix that-what a    joke
'They' say this is a one time issue and should be fixed by next year.....yeah right.

Tropic Lightning69's picture
Joined: 2009-09-24

The office was Clinton Township, Mi.

Bud  Fox's picture
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Was this a legacy AGE or a Wach office?  Not that it matters but it would seem to be a bigger slap if it were a legacy Wachovia office and advisors.

tdude's picture
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Joined: 2009-02-03

its a legacy AGE office....The FA was either the number one or two producer in the MI/OH market place on the AGE side prior to the merger.
Dont know what his numbers were post bear market and one of the larger FA's in the great lakeas region

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