As effective as cost-cutting can be, there comes a point in every business diet when there is no more fat to cut. Such is the case now in the brokerage industry.

Like any person subsisting on too few calories for too long, the average rep has grown grumpy, and that mood is reflected in this year's Broker Report Card survey results. The average overall score of the seven surveyed firms dropped from 7.79 to 7.58, with five firms registering lower overall scores than last year. It's no mystery what lies at the root of the low scores. In the words of the Securities Industry Association's chief economist, Frank Fernandez, the brokerage industry has become, “too skinny.”

“The industry has been more productive each year,” he says. “But at the same time, fees for products and services continue to go down, and core businesses continue to be commoditized.”

True, firms renewed spending and hiring somewhat in the latter part of 2003, when earnings ventured into positive territory for a couple of quarters. But the industry is still very lean, and with recent earnings slumping, firms are cutting back expenses once again. Between the first and second quarters of 2004, the industry's expenses have contracted by about $150 million, according to the SIA.

How bad is it? One UBS rep equates the situation to the crisis facing the farming business in the mid-1980s.

“I won't say we need subsidies, but the expectation is bigger and bigger assets all the time, just to stay where you are,” he says.

At most of the firms, this task must be accomplished in spite of aging desktop equipment and operational bottlenecks that delay trades and postpone the opening of new accounts. With fewer sales assistants, reps are handling more grunt work themselves — using time that's supposed to be allotted to more important things, like meeting clients and gathering assets.

I Can't Hear You

So far, the firms' management seem deaf to concerns about the long-term negative effects of cost-cutting. But perhaps this will get their attention: Reps in this year's survey appear profoundly unhappy, and compensation is not the heart of the matter. Indeed, rep ratings of their firms' payout actually rose on average, from 6.89 last year to 7.02 this year. One big producer at UBS says everyone's hurting, but the younger producers are really taking it on the chin.

“It's been difficult since March, with the market playing dead and firms trying to keep numbers up, but the new guys trying to get going are really getting hammered by the lack of help,” he says.

It seems, however, every broker could use an extra hand these days. The average score for Support (which includes everything from account statements and operations to technology, training and sales assistants) declined from 7.60 last year to 7.33 this year. Suffocating compliance demands were linked to many of the problems in this area, but disappearing sales assistants, operational slowdowns and a lack of sufficient training and marketing all contributed to a general unhappiness among brokers.

Unfortunately, it hasn't been an easy year for their employers either, which helps explain the cuts. For brokerage firms, the new reality stands in stark relief to the recent past. After five consecutive quarters averaging $6.3 billion in profits, U.S. broker/dealer earnings plummeted 61 percent in the second quarter of 2004, according to the SIA.

For the 15 largest b/ds, the declines were even more dramatic. As a result, advisors at these firms are now dealing with even larger cutbacks. Profits at these firms fell 73 percent from nearly $4 billion in the first quarter to just over $1 billion in the second.

Unfortunately, the second half doesn't look any brighter. The SIA estimates that total industry profits in 2004 will fall more than $5 billion short of the $24 billion total in 2003, with more of the same likely in 2005.

Survey Says…

In this year's survey, reps' biggest complaints revolved around disappearing and ailing support functions. The wirehouse reps were far and away the least satisfied with their firms in this area, but taken as a whole, reps rated Quantity of Sales Assistants a 5.71 (down from 6.69), Sales Ideas a 6.19 (down from 7.41) and Sales Support a 6.35 (down from 7.64).

In the realm of operations (a word that seems to make many reps clench their teeth), complaints this year (6.42) were also significantly louder than last year (7.80). One Morgan rep says getting trade approval in new accounts takes “days, not hours” to achieve now, a complaint heard at other firms as well.

Certainly a large measure of this year's discontent might also be attributed to what could be called the brokerage industry's necessary — or not, depending on whom you ask — evil: regulatory compliance.

Whether it's invitations to seminars, client entertainment events or new account forms, absolutely everything is held under a magnifying glass now, says one UBS rep. As an example, he says that a four-sentence invitation to a yearly appreciation dinner for his top 20 clients was held up two-and-a-half weeks in the compliance department, nearly costing him some attendees.

“I was ticked — I had to call them all, explain why it was such short notice and could they still come,” says the rep.

Many respondents to the Registered Rep. survey said compliance regulations were “too stringent.” This was most strongly felt at Morgan Stanley, Smith Barney and UBS, where more than 55 percent of reps reported feeling this way. Brokers echoed this sentiment on a lesser scale at A.G. Edwards (45 percent) and Merrill (31 percent).

In the write-in portion of the survey, several reps said whether compliance regulations were too stringent or inadequate was beside the point. One A.G. Edwards rep wrote, “Even the new systems…will not stop someone who acts in an unscrupulous way.” Another wrote, “Bad apples will always find a way to do the wrong thing, no matter what compliance rules you apply.”

Deal With It

Nonetheless, more reps would be wise to get used to the new regulation, given the firm stance of regulators on the matter.

Robert Glauber, NASD president, had this to say at the spring securities conference: “At the largest firms, the costs of solid compliance and supervisory systems are counted in the millions of dollars. The scandals of the past two years, by contrast, have shown that the costs of lax compliance — in terms of both lost market value and lost business at some of our nation's largest investment houses — are counted in the billions. You can do the math.”

The SEC was even more succinct: “We all need to take a moment to focus on [the SEC's] mandate,” said Commissioner Roel Campos recently. “The rules are designed to protect investors. The bottom line — the finances of broker/dealer firms and fund companies — are, frankly, not our concern…One cannot quantify the benefits of transparency.”

More than a few reps would like to see the whole scandal mess in the rearview mirror. The survey found that no less than 20 percent of brokers at all the firms reported recent fund scandals “had produced a negative effect” on them personally. Reps at Morgan Stanley (33 percent), Smith Barney (32 percent) and Merrill Lynch (26 percent) reported feeling a particularly strong sting.

“I've spoken with prospects who would not consider my firm based on the negative views,” wrote one Morgan rep.

A Smith Barney broker says he spent so much time separating out his own due diligence — from his firm's — in the minds of clients that his productivity had suffered.

The Smith Barney broker's strategy of delineating between the firm and the broker has become a common approach to soothing jittery clients. Another Smith Barney broker says he simply reminds clients he is working for them, not the firm.

This distancing is unsurprising, given the dip in ratings reps gave their firms for Overall Ethics and Public Image. These numbers declined this year from 8.75 to 8.32 and from 7.62 to 7.32, respectively.

Indeed, many of the reps interviewed say trust would only come back with a long run of scandal-free behavior. In the short term, they're just trying to make some money for their clients — heavily emphasizing the word “some.”

One UBS rep says that he's keeping client's money “well diversified” in equity accounts, but also doing a lot more structured trades and using more investments not correlated to the stock markets. But he's also very clear — and blunt — about his predictions when clients ask if there are better days ahead.

“I'm telling everyone not to expect much return from the markets in the next couple decades,” he says.

But as one Morgan rep muses, the present situation might prove a blessing in disguise.

“Last year was such a big year, and people we're saying ‘it's back!’” says the rep. “Well, this is just a reminder that the 1990s are gone. People's expectations of the market need to be ratcheted down, and as much as I hate this market, it's doing just that.”

Registered Rep.'s Broker Report Cards

Brokers rate their firms.

Uncertainty in the securities industry tends to have a dire effect on how advisors view their firms, and this past year was no exception.

In particular, most advisors noticed that support in a variety of areas — be it sales assistants, training or operations — declined this year, and they punished their firms in those categories. Overall, five of the seven firms surveyed in Registered Rep.'s 14th annual Brokerage Report Card survey posted lower scores this year, with only A.G. Edwards and Merrill Lynch improving on last year's results.

Firms averaged a cumulative 7.58, down from the 7.79 and 7.83 overall averages posted for 2004 and 2003, respectively. Edward Jones was once again rated the best of the brokerage firms, with an 8.82 overall average, but the margin between Edward Jones and its nearest competitor, A.G. Edwards, is dwindling. Edward Jones received the highest score in 14 of 20 categories surveyed, with A.G. Edwards tops in the other six.

The lowest overall score was garnered by Morgan Stanley, which averaged out to 6.34 due to below-industry-average scores in the Payout, Sales Support, Quality of Sales Ideas and Sales Assistant categories. Morgan received the lowest scores in all but two categories, and tied for lowest in a third.

The best category overall, once again, was Freedom From Pressure to Sell Certain Products, which averaged 9.01 across all firms; reps were also high on Overall Ethics (8.31) and Realistic Sales Quotas (8.40). The worst category, once again, was the Quantity of Sales Assistants, which received an overall 6.58, a decline from last year's 6.69 score. Other sore spots: Payout, garnering just a 7.02, and Quality of Sales Ideas, averaging just 7.15.

The Big Picture
How seven of the nation's largest brokerage firms stack up against one another.
FIRM A.G. Edwards Edward Jones Merrill Lynch Morgan Stanley Smith Barney UBS Securities Wachovia All Firms
Overall Average 8.53 8.82 7.65 6.34 7.45 7.08 7.20 7.58
Work Environment 9.12 8.44 7.75 6.67 8.10 7.31 7.63 7.86
Freedom from pressure to sell certain products 9.87 9.22 8.83 7.97 9.30 8.73 9.16 9.01
Realistic sales quotas 9.39 9.13 7.67 7.45 8.76 7.93 8.44 8.40
Hiring and recruiting practices 8.53 8.27 7.03 5.22 7.58 7.04 6.61 7.18
Payout 8.87 8.13 7.17 5.57 7.10 5.75 6.54 7.02
Benefits 9.01 7.45 8.07 7.22 7.56 6.93 7.42 7.67
Support 8.25 8.96 7.53 6.09 7.05 6.81 6.62 7.33
Sales support 8.42 9.33 7.40 5.89 6.71 6.73 6.24 7.25
Quality of sales assistants 8.16 9.08 7.99 6.31 7.51 7.31 6.88 7.61
Quantity of sales assistants 7.34 9.33 6.12 4.98 5.81 6.42 6.06 6.58
Quality of sales ideas 8.12 9.03 7.29 5.85 6.64 6.42 6.68 7.15
Ongoing training 8.51 9.16 7.31 6.13 7.25 6.13 6.46 7.28
The quote and information system 9.01 8.37 8.31 7.28 7.84 7.75 6.88 7.92
Quality of operations 8.49 8.83 7.81 5.90 6.97 6.95 6.76 7.39
Account statements 7.87 8.66 7.91 5.98 7.88 6.75 6.98 7.43
Product 8.27 8.71 7.66 6.44 7.16 7.12 7.78 7.59
Quality of research 7.79 8.25 8.03 6.89 6.74 7.00 7.48 7.45
Fixed-income pricing 8.09 8.73 6.80 5.63 6.84 6.65 7.67 7.20
Quality of the products offered 8.94 9.14 8.16 6.74 7.91 7.70 8.20 8.11
Management 8.54 9.22 7.77 6.43 7.68 7.36 7.60 7.80
Your branch manager 8.00 8.83 7.47 6.18 7.65 6.85 7.73 7.53
Strategic focus 8.06 8.95 7.36 6.16 7.49 6.93 7.02 7.42
Overall ethics 9.22 9.33 8.33 6.89 8.06 8.02 8.32 8.31
Public image 8.83 9.11 7.93 6.58 7.47 7.65 7.34 7.84

Methodology: How the Firms Were Surveyed

Rep. polled between 50 and 75 reps from each firm through an online survey conducted in August and September 2004. Additional interviews and surveys were conducted by phone in September and October. Reps were required to have at least one year in production at their firm, and were asked to rank their employers in 20 categories, based on a scale of 1 to 10, with 10 representing the best. The brokers were drawn from a random sample of the subscriber list of this magazine.

MERRILL LYNCH: Tops Among Wirehouses

In the last year, Merrill Lynch continued to focus on comprehensive wealth management for increasingly wealthy clients while reorganizing its corporate structure away from product silos. The new focus is on creating the right financial solutions for clients rather than pushing products.

So far, advisors are happy about it, and this manifested itself in an overall improvement in Merrill Lynch's score. Mother Merrill's average in the Registered Rep. Broker Report Card Survey rose to 7.65, compared with 7.54 last year. That's a slight gain and, with the slight decline for Smith Barney (see page 43), it moves Merrill Lynch into the top spot among the five major wirehouses (A.G. Edwards and Edward Jones still outpace Merrill).

The firm is in the midst of a $1 billion technology investment in desktop workstations and has continued to add services to the elite client platform, including a loan-management account and a new credit card. As a result, the firm's scores improved in the Product and Support areas, with overall marks of 7.66 and 7.53, respectively, compared with 7.48 and 7.28 last year. “Merrill has been trying harder to give us the necessary tools to help simplify our jobs,” says one rep.

The upgraded workstations, put together by Merrill and Thomson Financial, helped the firm improve its Quote and Information System, rising to 8.31 this year from 7.88 last year, a 5.5 percent increase. The desktops include new asset-allocation models and portfolio reviews, with more tools to be introduced.

The firm's best score — like several other firms — was in the Freedom From Pressure to Sell Certain Products category, which rose to 8.83 this year from 8.76 last year. “I have freedom to work in the way I wish to work, but with access to the best client-review tools I have seen,” one advisor says. “This is a far cry from where we were only five years ago.”

While advisors say they have the support they need, there are still areas where the firm comes across as penny-pinching. For instance, the Quantity of Sales Assistants rates just a 6.12, although that's a significant improvement from 2003, when it was ranked at 5.54. “Client associates need to be better compensated so financial advisors don't have to pay them so much to keep them happy,” says one.

Reps, overall, were split on the focus on the high-net-worth and ultra-high-net-worth clients. “The strategic focus is only on the superaffluent,” says one advisor. “If you're retail, you need to be retail friendly.” Scores for the firm's strategic focus dropped to 7.36 from 7.66 in 2003. “They say they're a wealth-planning company and yet they still recommend products or sales ideas,” says another.

As of third-quarter 2004, client assets totaled $1.487 trillion, up from $1.387 trillion the year prior. After several years of letting the size of the salesforce decline from a peak of 20,000 to a low of around 13,000, the firm is growing again. Year to date, Merrill has hired 600 financial advisors, bringing the salesforce to 14,100 — and Merrill has a goal to increase headcount by another 5 percent each year in the next two years.
David A. Gaffen

Merrill Lynch
Score Average, All Firms
Overall Average 7.65 7.58
Work Environment 7.75 7.86
Freedom from pressure to sell certain products 8.83 9.01
Realistic sales quotas 7.67 8.40
Hiring and recruiting practices 7.03 7.18
Payout 7.17 7.02
Benefits 8.07 7.67
Support 7.53 7.33
Sales support 7.40 7.25
Quality of sales assistants 7.99 7.61
Quantity of sales assistants 6.12 6.58
Quality of sales ideas 7.29 7.15
Ongoing training 7.31 7.28
The quote and information system 8.31 7.92
Quality of operations 7.81 7.39
Account statements 7.91 7.43
Product 7.66 7.59
Quality of research 8.03 7.45
Fixed income pricing 6.80 7.20
Quality of the products offered 8.16 8.11
Management 7.77 7.80
Your branch manager 7.47 7.53
Strategic focus 7.36 7.42
Overall ethics 8.33 8.31
Public image 7.93 7.84

SMITH BARNEY: Team Players

Scores for the nation's second-largest broker/dealer, Smith Barney, dipped 3 percent in 2004, declining to 7.45 from an overall average of 7.71 in 2003. While Smith Barney advisors remain happy with their firm's ability to provide sales ideas and freedom to choose investment products, some worry the firm is too tight with expenses — hurting its scores in the following areas: operations, training and sales support.

In the last year, under the stewardship of Sallie Krawcheck and veteran Tom Matthews, Smith Barney has revised its grid, introduced new tools, like a portfolio-minder feature that alerts reps to portfolio allocation changes, and is currently rolling out a program that gives perks to clients based on total assets kept with the firm.

Alterations to the grid, announced in January, bumped up payout for reps with annual gross of more than $300,000 — with even higher bonuses for those who hit $1 million in production — Krawcheck's “March to a Million” goal for all Smith Barney reps. This bonus will be enjoyed by many brokers, since annualized revenue per financial consultant was $500,000, up from $482,000 in the third quarter of 2003 — but it dipped sharply from the first quarter, when it hit $577,000.

But, the firm also eliminated asset-based bonuses, which rankled some reps who have large but somewhat inactive accounts. “They've changed the formula for consultant compensation for assets under management so it's in the firm's favor,” complained one rep. “This results in very low compensation for servicing clients with assets on the books.”

Surveyed advisors were most concerned about aggressive compliance, an industrywide trend, with one Smith Barney rep saying, “I can't go to the men's room without signing a form.” Reps rated the Quantity of Sales Assistants a 5.81, the firm's lowest score; overall Sales Support declined to 6.71 from 7.52 a year ago, and the Quality of Operations netted a 6.97 score, down sharply from 8.16 in 2003. “The firm has always put a low emphasis on sales assistants,” one rep said.

Once again, the firm retained high scores for the freedom accorded to reps — Sales Quotas scored 8.76, up from 8.44 the previous year, and “freedom from pressure to sell certain products” remained Smith Barney's best category. In addition, the research department, loathed by many reps two years ago due to Jack Grubman-related scandals, continues to bounce back, albeit slowly. It scored 6.74 this year, up from 6.40 in 2003.

Internal firm research showed, according to Krawcheck, that advisors become more productive when they join a team, and investing further in those structures is currently a priority — partially by bumping up the payout of junior team members to the level of senior members in certain cases. Branch management and training also remains a priority, although the declining scores for training means that hasn't taken hold among the salesforce yet.

Satisfaction among reps has improved, and so has the firm's public image, advisors say. Smith Barney is entering another transition period, with Todd Thomson, former Citigroup CFO, switching positions with Krawcheck to become Smith Barney CEO.

“It's a terrific firm,” says one. “The executive management is so responsive — I can't say enough good. Recruiters need not call for any amount of money.”
DAG

Smith Barney
Score Average, All Firms
Overall Average 7.45 7.58
Work Environment 8.10 7.86
Freedom from pressure to sell certain products 9.30 9.01
Realistic sales quotas 8.76 8.40
Hiring and recruiting practices 7.58 7.18
Payout 7.10 7.02
Benefits 7.56 7.67
Support 7.05 7.33
Sales support 6.71 7.25
Quality of sales assistants 7.51 7.61
Quantity of sales assistants 5.81 6.58
Quality of sales ideas 6.64 7.15
Ongoing training 7.25 7.28
The quote and information system 7.84 7.92
Quality of operations 6.97 7.39
Account statements 7.88 7.43
Product 7.16 7.59
Quality of research 6.74 7.45
Fixed-income pricing 6.84 7.20
Quality of the products offered 7.91 8.11
Management 7.68 7.80
Your branch manager 7.65 7.53
Strategic focus 7.49 7.42
Overall ethics 8.06 8.31
Public image 7.47 7.84

MORGAN STANLEY: Fall From Grace

Just two years ago, Morgan Stanley was riding high. It had largely sidestepped the investment banking scandals that had zinged many of its peers. In addition, it had avoided cutting costs at the rate of others in the industry and its proprietary-products business was thriving. Most important of all, the firm's reps were happy; Morgan beat all wirehouse comers in Rep.'s broker report card survey that year.

What a difference 24 months can make.

It's probably not an overstatement to say Morgan Stanley now is in chaos. Scandals — including one involving those vaunted proprietary products — have caught up to the firm. Recruiting has turned into a revolving door, and the firm's business model has been labeled archaic and destructive.

Unsurprisingly, the firm's reputation with its brokers has suffered. For the first time, Morgan Stanley finished dead last in Registered Rep.'s Broker Report Cards. With a wretched 6.34 overall rating. Morgan is more than a full point below the average for all firms. In fact, it finished below all firms' averages in every single one of the 24 categories ranked.

“It's been a rough couple of years,” one rep says. “Sometimes it's not clear where we're going, or what we're trying to do.”

Indeed: The firm's Strategic Focus received a survey low 6.16, far below the 7.42 average for all firms.

Morgan's Overall Ethics took another big hit, from 8.02 last year to 6.89 this year.

“You can see that they're trying to make changes, but it's at a pretty slow pace,” says one rep. “It feels like every time one problem is resolved, three others jump up.”

The firm's support areas also receive the thumbs down from reps, most specifically the Quantity of Sales Assistants, which received a 4.98, the lowest score of any category for any firm in three years.

The inability of the firm to get away from its proprietary-products business, a practice that has drawn the eye of investigators, also drew considerable fire from reps. (Most recently, New Hampshire regulators have accused the firm of sponsoring sales contests.) “They give us a platter of stuff, and that's what we sell, and that's that,” says one. “That's still the case, as much as they say they've tried to get away from it.”

But the most common complaint from reps appears to involve compensation and hiring and recruiting practices. At last count, Morgan Stanley had 11,086 reps, a 12 percent decrease from a year earlier. It has been aggressive of late, offering a 75/25 cash/stock split and larger upfront bonuses to entice new candidates, but reps, so far, aren't convinced the enticements are working.

“I don't remember the last time we brought in a real big-dog type of guy,” one rep says. “Either we pay too much for some guy to come in who's the wrong type of guy, or we bring in young guys whom you have to carry for a year or two.”

Compared to the rest of its scores, Morgan Stanley fared respectably on the Quote and Information System (7.28) and Realistic Sales Quotas (7.45). Still, almost every rep reached by Registered Rep. had something to complain about. And the majority were complaints about an apparent lack of direction at the firm.

“Frankly, we'd love to be told which direction to go in, even if it's the wrong one,” one rep says.
Will Leitch

Morgan Stanley
Score Average, All Firms
Overall Average 6.34 7.58
Work Environment 6.67 7.86
Freedom from pressure to sell certain products 7.97 9.01
Realistic sales quotas 7.45 8.40
Hiring and recruiting practices 5.22 7.18
Payout 5.57 7.02
Benefits 7.22 7.67
Support 6.09 7.33
Sales support 5.89 7.25
Quality of sales assistants 6.31 7.61
Quantity of sales assistants 4.98 6.58
Quality of sales ideas 5.85 7.15
Ongoing training 6.13 7.28
The quote and information system 7.28 7.92
Quality of operations 5.90 7.39
Account statements 5.98 7.43
Product 6.44 7.59
Quality of research 6.89 7.45
Fixed-income pricing 5.63 7.20
Quality of the products offered 6.74 8.11
Management 6.43 7.80
Your branch manager 6.18 7.53
Strategic focus 6.16 7.42
Overall ethics 6.89 8.31
Public image 6.58 7.84

UBS: Out of the Cellar

UBS's Overall average score rated dead last in last year's broker report cards, and this year its score dropped even lower.

The silver lining: At least one other firm's ratings (Morgan Stanley's) dropped more precipitously, allowing UBS to avoid ranking last for two years running. Also on the positive side, the firm steered clear of the scandals that plagued so many of its rivals.

Still, it's clear the world's largest asset manager has some reckoning to do with its brokerage work force. Shrinking compensation and ongoing tensions between management and the firm's home office in Switzerland continue to drag on reps' morale.

UBS brokers were only slightly less bitter about their payout this year (5.75) than they were last year (5.34). Specifically the reps take issue with fee-based retention fees and the $12 ticket charges, which they say seriously diminish payouts.

“There's tremendous pressure on payout margins,” one rep says. “They continually want more production for less pay.”

The firm's cost-cutting manifests itself in areas beyond paychecks: UBS' Benefits score (6.93) ranked dead last in this year's survey. Irking reps even further is that even as they are asked to be more efficient, UBS is cutting back its spending on the tools that would allow them to be so. “I have a five-year-old computer that they keep stuffing with software,” says one broker.

Operations have apparently gotten worse as well, thanks in no small part to more stringent compliance requirements. Many reps complain that approving new accounts and trades in new accounts takes “hours, even days,” and 56 percent of UBS brokers called the firm's compliance rules “too stringent.”

Management is “so intensely afraid of being sued, they're bearing down on us over the most niggling little things,” says one rep.

UBS brokers gave their branch managers the second-lowest rating (6.85) among all the firms. One broker said turnover was to blame: “We've gone through so many managers in the past two years that who was good or bad doesn't matter.”

The firm's strategic focus was also given a dismally low rating (6.95), with brokers saying the push to acquire high-net-worth clients was leaving all but the most stellar producers behind.

“Our new manager is wholly concerned about his large brokers — midlevel guys get short shrift,” said one.

He added that walk-ins, IPOs and rich professional athletes (UBS has a contract with the NFL Players Association) go immediately to the producers with the largest fee-based businesses.

This view is consistent with UBS' hiring push, in which it is offering big upfront bonuses to top producers in an effort to acquire more “big-game hunters.” Meanwhile, middle-of-the-pack brokers feel neglected, a sentiment reflected in the Hiring and Recruiting Practices score of 7.04.

“The guys coming in are getting a majority of the big accounts with huge assets for doing nothing,” says one rep. “There's not even a façade of fairness going on here.”

But it's not all doom and gloom. Not reflected in the survey is the feeling UBS' stable of professional resources and support — from estate lawyers to accountants — is second to none.

And even some of the most frustrated brokers expressed continued loyalty and hope for their firm's future: “Sure, they're a little heavy-handed at times, but as long as they're straight with us and we know what's coming, I'll toe the line.”
John Churchill

UBS
Score Average, All Firms
Overall Average 7.08 7.58
Work Environment 7.31 7.86
Freedom from pressure to sell certain products 8.73 9.01
Realistic sales quotas 7.93 8.40
Hiring and recruiting practices 7.04 7.18
Payout 5.75 7.02
Benefits 6.93 7.67
Support 6.81 7.33
Sales support 6.73 7.25
Quality of sales assistants 7.31 7.61
Quantity of sales assistants 6.42 6.58
Quality of sales ideas 6.42 7.15
Ongoing training 6.13 7.28
The quote and information system 7.75 7.92
Quality of operations 6.95 7.39
Account statements 6.75 7.43
Product 7.12 7.59
Quality of research 7.00 7.45
Fixed-income pricing 6.65 7.20
Quality of the products offered 7.70 8.11
Management 7.36 7.80
Your branch manager 6.85 7.53
Strategic focus 6.93 7.42
Overall ethics 8.02 8.31
Public image 7.65 7.84

EDWARD JONES: Still the One

The past year was a tough one for Edward Jones, but you would never know it from speaking to the firm's reps.

For the first time in recent memory, the St. Louis-based firm took a public hit via a front-page story in The Wall Street Journal that charged the firm with revenue-sharing violations.

One might expect this to damage a firm that trades so heavily on a squeaky-clean image, but Jones has emerged from an initial quiet period to aggressively deny the allegations (though sources say a settlement with regulators could be pending). And if the allegations have made any difference in the reps' day-to-day dealings with clients, they are not in evidence in the firm's report-card scores. For the 12th consecutive year, Edward Jones tops our survey with an 8.82 number, down slightly from last year's 8.99, but still comfortably ahead of A.G. Edwards' 8.53.

Even though reps took the firm's Overall Ethics and Public Image ratings down a notch (from 9.72 and 9.46 to 9.33 and 9.11, respectively — still the best in the survey in both categories), and even though the numbers in each of the four major categories were all down a tick, reps clearly still think highly of their firm.

Perhaps it's a measure of how well the firm understands what the reps want from it: “We get what we need here, and we're left alone,” one rep says.

The firm received verbal praise for its ethics, for its unwavering business focus and for its attention to the needs of its reps, including its longstanding policy of providing a full-time assistant paid for by the firm. Its ranking on Support was 8.96, dwarfing all other firms, which averaged only a 6.38.

The firm's steady, conservative approach was consistently lauded by reps.

“No matter what's going on, we don't change what we're doing,” one rep says. “That scandal didn't faze anybody in the slightest. We thought it was weird that they were so quiet at first, but they were really just putting their heads down and getting everybody back to work. It was encouraging.”

The firm is famous for eschewing proprietary products and for keeping its business consistent. Its policy of paying reps a bonus when the firm performs well contributes to a family atmosphere that is reflected in the reps' fierce sense of loyalty.

“We just circle the wagons over here,” one rep says. “You don't pay attention to anything other than what you have to do.”

As usual, the firm's Quality of Research score was one of its lowest, at 8.25, with several reps pointing out that sometimes the firm can be too conservative for its own good. The scores were also relatively low for Jones' payout, at 8.13. Technology has been a concern for reps as well, particularly the Quote and Information System, which scored only 8.37. Because many of the firm's reps pay for their own health care, the lowest score was Benefits, with 7.45.

However, reps seem to understand that some of the low-scoring categories come with the territory. The reps, many of whom man one-man offices in strip malls, want to be left alone to do their thing, and Edward Jones excels at doing just that.
WL

Edward Jones
Score Average, All Firms
Overall Average 8.82 7.58
Work Environment 8.44 7.86
Freedom from pressure to sell certain products 9.22 9.01
Realistic sales quotas 9.13 8.40
Hiring and recruiting practices 8.27 7.18
Payout 8.13 7.02
Benefits 7.45 7.67
Support 8.96 7.33
Sales support 9.33 7.25
Quality of sales assistants 9.08 7.61
Quantity of sales assistants 9.33 6.58
Quality of sales ideas 9.03 7.15
Ongoing training 9.16 7.28
The quote and information system 8.37 7.92
Quality of operations 8.83 7.39
Account statements 8.66 7.43
Product 8.71 7.59
Quality of research 8.25 7.45
Fixed-income pricing 8.73 7.20
Quality of the products offered 9.14 8.11
Management 9.22 7.80
Your branch manager 8.83 7.53
Strategic focus 8.95 7.42
Overall ethics 9.33 8.31
Public image 9.11 7.84

WACHOVIA: Merger Hangover

It's been a year-and-a-half since Wachovia Securities' officially merged with Prudential Securities, but the firm is still struggling with creating a unified brokerage work force.

Reps in this year's report-card survey gave the firm high marks for its ethics and for its entrepreneurial atmosphere, but interviews for the report cards revealed that both Wachovia reps and former Pru brokers are weary of the merger and its ongoing integration problems.

Last year, when the physical integration of the firms was just beginning, reps gave the firm an overall rating of 7.41 — good enough for fourth place. This year, Wachovia reps take their firm down a peg to fifth place overall with a rating of 7.20.

One common complaint: Wachovia's culture is too bank-oriented, to the detriment of those in the securities business.

“Brokerage is a face-to-face thing, banks are less in touch with customers,” says one rep. “Our clients are being turned into numbers.”

This issue extends to the decision to convert the entire brokerage organization to Wachovia's Smart Station desktop system — a system which numerous reps have derided as vastly inferior to the one deployed by Pru before the merger.

“They told us they'd bring the best of both worlds in terms of tech — well, it's Wachovia's stuff, and it's prehistoric,” says one legacy Pru rep. Another broker says the rollout process was abysmal, costing him four full business days in September.

Not surprisingly, reps gave the Quote and Information System a 6.88 — the lowest mark of any of the firms, and down from 7.84 last year.

One rep says the technology — “when it was working” — wasn't so bad, if they only would have trained him to use it earlier.

“They tell us to go into WebEx,” he says. “I have a business to run; I can't train myself an hour or two every day.”

A lack of sufficient support is an industrywide complaint, but reps at Wachovia insist theirs is a particularly bad situation. They rated Overall Support at 6.62, down from 7.18 last year and second-lowest among all firms in this year's survey. Wachovia reps are feeling hard-hit by the loss of good sales assistants, discounting the scores for both the quality and quantity of sales assistants by more than a point this year.

Operations can be sticky as well. One rep says opening accounts takes nearly an hour, and placing certain orders can take nearly a day. Reps scored the firm's Operations a 6.76.

Another area of grave concern, not so much for Wachovia reps but the Pru contingent, has been payouts. Specifically Pru reps say disparities in payouts amount to a slap in the face.

“We're six miles from a Wachovia office where they're making 10 to 20 percent more than us for the same job,” one rep says. “It's infuriating.”
JC

Wachovia
Score Average, All Firms
Overall Average 7.20 7.58
Work Environment 7.63 7.86
Freedom from pressure to sell certain products 9.16 9.01
Realistic sales quotas 8.44 8.40
Hiring and recruiting practices 6.61 7.18
Payout 6.54 7.02
Benefits 7.42 7.67
Support 6.62 7.33
Sales support 6.24 7.25
Quality of sales assistants 6.88 7.61
Quantity of sales assistants 6.06 6.58
Quality of sales ideas 6.68 7.15
Ongoing training 6.46 7.28
The quote and information system 6.88 7.92
Quality of operations 6.76 7.39
Account statements 6.98 7.43
Product 7.78 7.59
Quality of research 7.48 7.45
Fixed-income pricing 7.67 7.20
Quality of the products offered 8.20 8.11
Management 7.60 7.80
Your branch manager 7.73 7.53
Strategic focus 7.02 7.42
Overall ethics 8.32 8.31
Public image 7.34 7.84

A.G. EDWARDS: Wishes Granted

A.G. Edwards reps have given their firm consistently high marks over the years, but they have also voiced persistent complaints about technology and marketing.

In 2004 Edwards' management made a point of addressing those negatives — signing deals with Morgan Stanley and Thomson Financial to improve desktop technology and launching a reported $20 million advertising campaign to promote the A.G. Edwards brand.

The reps took notice of the efforts. Thanks largely to substantial increases in the categories of Support and Public Image, the St. Louis-based brokerage's overall score rose to 8.53 this year (from 8.31 in 2003), keeping the firm in second place in overall broker satisfaction.

The Support score jumped from 8.13 to 8.25, with reps specifically noting improvements in the Quote and Information System category. Meanwhile, the firm's overall Work Environment score skyrocketed from 8.58 to 9.12.

“Things are a little smoother here in a lot of different ways,” one rep says. “The improvements they've tried to make, they've really worked.”

But the major rap on AGE has always been its wallflower status in the marketplace. Clients tend to love the firm, but few noncustomers have heard of it. The ad campaign commissioned by Edwards' CEO Robert Bagby took aim at this problem, and, from the reps' perspective, brand awareness has improved. The firm's Public Image rating rose significantly, from 7.70 in 2003 to 8.83 this year.

In last year's survey, countless reps cited branding as their No. 1 complaint. Most have changed their tune.

“For the first time that I can remember, people are actually coming in here knowing who we are,” says one Midwestern rep, who notes that he's landed more new clients in the last year than ever before. “We were all waiting for that.”

Another area of notable improvement: Hiring and Recruiting Practices, whose score rose from 7.42 to 8.53. Several reps pointed to A.G. Edwards University as having more success in bringing in better reps from the start.

“It seems like we're not getting as many dumb kids whose hand you have to hold,” says one rep, adding that he's noticed the good turnover rate getting even better. “The trickle of people has slowed a bit, which is probably good,” he says.

One of AGE's perpetual strengths has been its reputation, which this time last year had remained largely unbesmirched by scandal. But then Edwards got dinged for the first time earlier this year, after several reps in one of the firm's Boston offices were charged with market-timing (and were later fired).

The impact of the scandal on the firm's public standing, however, has proven negligible — at least from the reps' perspective. Edwards reps ranked the firm's Overall Ethics at a 9.22, down from last year's 9.56 but still second-best of the firms surveyed. Still, because the firm leans so heavily on its reputation, the stakes are arguably higher at Edwards than at other firms when it comes to image.

On balance, though, AGE reps are pleased, not just with their own practices, but the direction of the firm.

“We've had tons of times where we legitimately wondered what they were thinking in St. Louis,” one East Coast rep says. “But now they're doing things that make sense. They're seeing what needs improving, and they're going out and improving it. He adds, “Of course, that could mean they're shoring us up for a sale. But yes, it has been a good year.”
WL

A.G. Edwards
Score Average, All Firms
Overall Average 8.53 7.58
Work Environment 9.12 7.86
Freedom from pressure to sell certain products 9.87 9.01
Realistic sales quotas 9.39 8.40
Hiring and recruiting practices 8.53 7.18
Payout 8.87 7.02
Benefits 9.01 7.67
Support 8.25 7.33
Sales support 8.42 7.25
Quality of sales assistants 8.16 7.61
Quantity of sales assistants 7.34 6.58
Quality of sales ideas 8.12 7.15
Ongoing training 8.51 7.28
The quote and information system 9.01 7.92
Quality of operations 8.49 7.39
Account statements 7.87 7.43
Product 8.27 7.59
Quality of research 7.79 7.45
Fixed-income pricing 8.09 7.20
Quality of the products offered 8.94 8.11
Management 8.54 7.80
Your branch manager 8.00 7.53
Strategic focus 8.06 7.42
Overall ethics 9.22 8.31
Public image 8.83 7.84