At first glance, the results of this year's Annual Broker Report Card survey seem, well, charitable — very charitable. On average, reps gave the firms they work for a grade of 7.4 out of 10, which translates into a solid C. We find that curious. You'd think that the advisors at these eight firms would have awarded their employers a collective D or an outright F — as in Failure.

After all, the firms surveyed collectively destroyed nearly $300 billion in capital via mortgage-related write-downs (as of October, pre-Citi bailout), abandoned your retail clients in the auction-rate securities market freeze and, in many cases, were so balance-sheet weak that they needed capital injections from sovereign wealth funds to recapitalize. And then came the forced marriages to banks (or, in Morgan Stanley's case, bank holding company status) and the outright capital injection brought on by the Paulson Plan.

Altogether, you could say it's been one hell of a year. So what's with the average C grade? Part of the answer lies in Edward Jones. As usual, Ed Jones advisors universally report loving their firm. (And why not? The firm didn't get caught up in any of the mess.) Derided by other FAs as cultish (“they knock on doors” is how one rep we know puts it), Ed Jones reps have given their firm an A grade nearly every year in the 18 years we have done this survey. And, as usual, they responded to our survey in droves: Thirty-two percent of usable surveys were submitted by Ed Jones reps.

In short, you can quit making fun of the Ed Jones reps: They are happy. If you were to pull out Ed Jones, the average FA approval rating would sink quite a bit (individual firm grades are: Two Cs, four Ds and one F; see page 30 for composite rankings). It is important to note that the results for JPMorgan (including Bear Stearns) and Bank of America Investment Services are potentially questionable since reps did not participate in statistically significant numbers, as the firms were new to this survey this year.

The other factor that skewed results upward, most likely, was simple timing. We collected data from June 12 through September 12 — before Merrill was forced into the arms of Bank of America, Wachovia was rescued by Wells Fargo and Sallie Krawcheck was sacked at Citi. Additionally, recent retention package offers and government bailout promises had yet to be made.

Because the Merrill/BofA shotgun wedding and the Lehman Bros. bankruptcy declaration of September 15 so changed the industry landscape, we decided to look separately at the responses that came in between September 15 and 22 — after our survey had technically closed. While there were not enough responses to be considered statistically reliable (there were only 34 total), the tone of the responses seems right: The average approval score sank from a mid C (7.4) to a just-above-a-D rating of 7.1. In addition, the number of advisors who said they would (“probably” or “definitely”) be with the same firm two years from now dove from 81 percent to 59 percent. Of course, with the entire Street a mess, a successful but fed-up Merrill Lynch advisor we know, asks, “Where else would I go?” Responding to his own question, he says, the RIA model “is looking pretty appealing these days.”

I'M WITH STUPID — AND I LIKE IT

Despite complaints, a majority of advisors say they will likely be at the same firm two years from now. No doubt the response rate would have looked slightly different if this survey had been conducted after Merrill's retention package was announced, Sallie Krawcheck left Citi and Wells Fargo bought Wachovia.

Q: How likely are you to still be working for your current firm two years from now?

Firm % probably or definitely will % definitely
Edward Jones 96 % 86 %
Merrill Lynch 84 52
JPMorgan Chase/ Bear Stearns 84 41
Morgan Stanley 83 46
Citigroup/ Smith Barney 79 32
Bank of America Investment Services 69 30
Wachovia Securities/ A.G. Edwards 69 30
UBS Financial Services 63 31

THE AUCTION-RATE SECURITIES CALAMITY WILL LEAVE SCARS

Thirty-three percent of respondents said that following the ARS mess, they will be more careful in assessing product risk. ARS auctions went off with only a half-dozen-or-so hitches in the past 20-plus years before seizing up entirely this past February. In short, advisors have been reminded that unprecedented (black swan) events happen all the time.

Q: How have the asset-backed securities and the ARS debacle affected how you view all financial products?

BofA Investment Services Citigroup Smith Barney Edward Jones JPMorgan Chase/Bear Stearns Merrill Lynch Morgan Stanley UBS Financial Services Wachovia Securities/A.G. Edwards
I am now more cynical 19
22.1%
40
18.6%
12
2.4%
1
3.1%
21
13.2%
18
13.6%
41
26.8%
40
14.2%
I am now more skeptical 30
34.9
78
36.3
58
11.8
14
43.8
65
40.9
61
46.2
70
45.8
131
46.6
Not at all, I was always careful 35
40.7
92
42.8
412
83.6
16
50.0
65
40.9
51
38.6
38
4.8
103
36.7
No answer 2
2.3
5
2.3
11
2.2
1
3.1
8
5.0
2
v
4
2.6
7
2.5

Methodology: How This Survey Was Conducted

Registered Rep. commissioned Penton Research to conduct its 18th Annual Broker Report Card study. Reps were randomly selected from the subscriber list of this magazine. Similar to previous years, advisors were required to have at least one year in production at one of the eight firms evaluated in the study. The research was conducted via the internet and by mail beginning in June and continuing through September of 2008. Sample sizes range from 32 to 493 by firm. The total sample size for all firms is 1,551.

Reps rated their current employer on 29 items related to their satisfaction. Ratings are based on a 1-to-10 scale, with 10 representing the highest satisfaction levels. This year, new questions were added in order to measure how mortgage-related write-downs and auction-rate securities (ARS) have affected advisors' relationships with clients and management. Penton research is a unit of Penton Media, publisher of Registered Rep. magazine.

MORTGAGING OUR FUTURE RELATIONSHIPS

It's true: The sub-prime securitization mess was not caused by retail financial advisors — but the debacle cost their firms big time (about $260 billion as of October 31). With these failings dominating headlines and causing a credit and stock market crisis, the fallout had, understandably, a negative effect upon clients' views of their advisors (except for JPMorgan Chase and Ed Jones).

Q: How have mortgage-related write-downs affected your relationship with clients? (On a scale of 1 to 5, 1 being “not at all” and 5 being “has caused great pain.”)

BofA Investment Services Citigroup Smith Barney Edward Jones JPMorgan Chase/Bear Stearns Merrill Lynch Morgan Stanley UBS Financial Services Wachovia Securities/A.G. Edwards
1=not at all 37
43.0%
72
33.5%
401
81.3%
16
50.0%
31
19.5%
63
47.7%
20
13.1%
71
25.3%
2 19
22.1
44
20.5
64
13.0
10
31.3
45
28.3
33
25.0
40
26.1
61
21.7
3 15
17.4
47
21.9
14
2.8
4
12.5
44
27.7
15
11.4
38
24.8
56
19.9
4 8
9.3
27
12.6
6
1.2
2
6.3
24
15.1
11
8.3
29
19.0
49
17.4
5=has caused great pain 7
8.1
20
9.3
2
0.4
-
-
10
6.3
7
5.3
22
14.4
36
12.8
No answer -
2.3
5
1.2
6
3.1
-
-
5
3.1
3
2.3
4
2.6
8
2.8
Mean 2.2 2.4 1.2 1.8 2.6 2.0 3.0 2.7

PRESTIGE OF FIRM MANAGEMENT TAKES A DIP

Over all, FAs' opinions of management declined from last year — some more than others. The mean score for how mortgage-related write-downs have affected relationships with management was 2.4. The firms most affected were Wachovia (51 percent), Citigroup (50 percent), UBS (48 percent) and Merrill Lynch (43 percent).

Q: How have mortgage-related write-downs affected your relationship with management?


BofA Investment Services Citigroup Smith Barney Edward Jones JPMorgan Chase/Bear Stearns Merrill Lynch Morgan Stanley UBS Financial Services Wachovia Securities/A.G. Edwards
1=not at all 31
36.0%
33
15.3%
447
90.7%
16
50.0%
15
9.4%
47
35.6%
18
11.8%
41
14.6%
2 17
19.8
34
15.8
21
4.3
7
21.9
28
17.6
18
13.6
23
15.0
31
11.0
3 18
20.9
34
15.8
12
2.4
4
12.5
37
23.3
24
18.2
33
21.6
53
18.9
4 11
12.8
44
20.5
3
0.6
2
6.3
31
19.5
23
17.4
22
14.4
63
22.4
5=has caused great pain 8
9.3
63
29.3
-
-
2
6.3
38
23.9
15
11.4
51
33.3
81
28.8
No answer 1
1.2
7
3.3
10
2.0
1
3.1
10
6.3
5
3.8
6
3.9
12
4.3
Mean 2.4 3.3 1.1 1.9 3.3 2.5 3.4 3.4

WE'RE NO. 1 — SERIOUSLY

Although it seems odd, besides BofA and UBS, a majority of respondents believe their firm is the best to work for. (As we noted in the “I'm with Stupid” table, the bulk of the survey was conducted over the summer, so it doesn't reflect the BofA/Merrill deal and other recent news.)

Firm % who believe their firm is the best to work for
Edward Jones 94%
Merrill Lynch 80
JPMorgan Chase/ Bear Stearns 69
Morgan Stanley 68
Citigroup Smith Barney 61
Bank of America Investment Services 58
Wachovia Securities/ A.G. Edwards 49
UBS Financial Services 48

PLUMMETING PRESTIGE

This year's Registered Rep. Broker Report Cards found a general souring of advisors' opinions of their firms. This is not surprising given that some nearly went out of business. Edward Jones was the notable exception. In general, reps say they're not happy with management — their overall rating of their employer's performance saw the largest drop (almost an entire point) from 8.4 last year to 7.5. The survey was conducted from June 14 to September 22.

After September 15, the day that Merrill announced its hasty marriage to Bank of America and Lehman Bros. filed for bankruptcy protection, respondents began to give their firms even lower “grades.” While the sample was small (just 59 after that date), the average FA overall approval rating went from 7.4 to 7.1. Here's how reps rated their firms on work environment, compliance support and management on a scale of 1 to 10.

FIRM All Firms Average BofA Investment Services Citigroup Smith Barney Edward Jones JPMorgan Chase/Bear Stearns Merrill Lynch Morgan Stanley UBS Financial Services Wachovia Securities/A.G. Edwards
Overall Rating 7.4 5.7 6.3 9.4 6.8 7.7 7.1 6.0 6.3
Work Environment C F D A D C C D D
Freedom from pressure to sell certain products 9.0 7.3 9.1 9.7 7.3 8.9 8.5 8.8 8.6
Realistic sales quotas 8.3 6.6 8.0 9.5 6.9 8.1 7.8 7.6 7.7
Hiring and recruiting practices 7.6 5.3 6.7 9.3 7.0 7.3 6.6 6.5 6.9
Payout 7.2 4.9 6.7 9.0 5.4 7.3 6.5 5.2 6.9
Benefits 7.6 7.2 7.0 8.8 6.4 8.2 8.0 6.3 6.6
Overall work environment and compensation 7.8 6.1 7.1 9.4 6.6 8.0 7.3 6.5 7.0
Compliance Support
Risk management 7.1 6.3 5.3 9.5 7.0 6.6 6.6 5.0 6.2
Compliance-specific training 7.6 6.6 6.4 9.4 7.1 7.9 6.9 6.6 6.6
Reduction of administrative burden (time and effort) 6.5 3.7 4.9 9.1 5.5 6.6 5.4 4.7 5.4
Overall compliance 7.1 5.3 5.6 9.3 6.2 7.2 6.2 5.4 6.1
Management
Your branch manager 7.6 6.5 7.0 9.4 7.5 7.8 7.2 7.1 7.4
Strategic focus 7.6 6.1 6.0 9.5 7.2 7.7 7.2 6.0 6.6
Overall ethics 8.1 7.6 6.9 9.7 7.8 8.3 7.9 6.6 7.4
Public image 7.4 7.2 5.8 9.7 8.2 7.0 7.9 4.6 5.8
Overall performance 7.5 6.7 5.9 9.6 7.5 7.5 7.4 5.6 6.3

THE AUCTION-RATE FREEZE HURTS

Auction-rate securities lawsuits cost firms $485 million in fines, in addition to a giant hit to their reputation. About $54.3 billion in assets were disgorged back to retail clients. But ARS affected some firms (UBS, ML, MS) more than others (Ed Jones), since ARSs are strictly for the high-net-worth set. While 55 percent of respondents indicate they do not have clients affected by auction-rate securities, for those who did, 9 percent said that their firm was “not at all helpful“ in resolving them. Some 18 percent indicated their firm has been “somewhat helpful,” but not necessarily at first (Citi was the first to address the problem). Most firms returned clients' ARS money, but only after bad press and outright pressure from regulators.

Q: If you have clients in auction-rate securities (ARS), how helpful has your firm been as you manage your relationship with clients?


BofA Investment Services Citigroup Smith Barney Edward Jones JPMorgan Chase/Bear Stearns Merrill Lynch Morgan Stanley UBS Financial Services Wachovia Securities/A.G. Edwards
Not at all helpful 27
31.4%
24
11.2%
3
0.6%
2
6.3%
14
8.8%
14
10.6%
17
11.1%
43
15.3%
Somewhat helpful 17
19.8
57
26.5
1
0.2
9
28.1
37
23.3
37
28.0
39
25.5
76
27.0
Very helpful 12
14.0
48
22.3
5
1.0
8
25.0
41
25.8
36
27.3
75
49.0
25
8.9
Do not have clients affected by ARS 30
34.9
86
40.0
464
94.1
13
40.6
60
37.7
41
31.1
21
13.7
131
46.6
No answer -
-
-
-
20
4.1
-
-
7
4.4
4
3.0
1
0.7
6
2.1