Don't take this the wrong way, but brokers — wirehouse reps in particular — tend to be a worried lot, regularly complaining about their firms even in the best of times. Indeed, they seem to be more prone to conspiracy theories than the general public. (Of course, we don't have any scientific proof, but anecdotal evidence suggests this; if you don't believe us, just visit the broker forums on our Web site.)

The classic example: A top-level producer at Wachovia suggested to this magazine that with all of the consolidation in the industry, the number of bulge-bracket securities firms would inevitably shrink to a few. “Then they'll have us [reps] where they want us and lower our payouts,” he speculated. “And there'll be no place we can go.” When he was asked why not leave now and go independent? He answered: “Because, they [Wachovia] take good care of me.”

And there you have it: On one hand, the broker is worried about getting abused by evil management, yet, on the other hand, he says he really likes his firm.

But, hey, that was last year, when the business was still turning around and a palpable fear lingered after the cost cutting of 2004. Indeed, last year, we reported that reps who participated in our annual Broker Report Card Survey “appear profoundly unhappy, and compensation is not the heart of the matter.” Earnings plummeted for securities firms in general that year, but rep payouts actually went up. What had our survey respondents upset was management: Too much cost cutting was destroying the support they needed.

How times have changed: This year, our 16th Annual Broker Report Card Survey theme is: We love management. (And management seems to love reps back.) Of course, scores were not perfect (see accompanying tables) and reps still, in general, complain about support help, but management and the advisor force seem to be getting on better than ever. Certainly, it doesn't hurt that profits are near record levels.

How Am I Doing?

Here's a perfect example of how management is reaching out to its advisor force: This summer, Smith Barney implemented an electronic suggestion box dubbed “We Hear You,” allowing reps to voice their concerns to the corporate office directly. One Smith Barney rep in New York says he has used the system more than once and received a response in less than 48 hours. Management, he says, is attempting to be “more in tune with what's going on with brokers. The changes are slow in coming, but they are more broker friendly.” Brokers can't help but feel happy that their concerns are being addressed. “Anyone I know who has [used the system] is very happy with the response,” he says.

Little things like these, as well as bigger improvements in retail strategy, and a decline in the number of regulatory fires that need putting out, are making reps much happier with firm leadership across the board. One of the biggest overall category jumps in this year's survey came from the performance/management group, where rep satisfaction was quite high (the all-firms average rose to 8.4, from last year's 7.9, a 6 percent rating jump). Barry Mendelson, founder of Capital Market Consultants in Milwaukee, explains: “These firms are doing a better job of creating a work environment that is constructive for advisors.” It may have something to do with fierce recruiting wars in the industry. Management, he says, is trying to create an “optimum work place so [reps] don't want to go anywhere else.”

Perhaps the biggest management miracle is Morgan Stanley. The firm had been listing badly following the Philip Purcell brouhaha. But reps seem to be thrilled with John Mack and retail-leader James Gorman guiding the firm. The firm is actually recruiting instead of hemorrhaging reps, and the company's stock is climbing. And although we do hear some grumbling from time to time about how Morgan is being “Merrill-ized” by Gorman (one conspiracy theory that won't go away: It's being cleaned up to be sold), reps credit vast improvements in performance to the change in management. A year ago, it was harder to do business with the headlines Morgan was making. Back then, says one Morgan broker, clients seemed to ask more questions about the firm than they did about their own investments. “[Today] we're in the press for good things rather than bad,” he says. “[Brokers] feel management is listening, and morale has dramatically improved because of that.”

UBS is another strategic turnaround in the making — at least that's the plan, since the firm's U.S. based wealth-management unit doesn't perform as well as the firm does abroad. In June, former Paine Webber-producer Marten Hoekstra was put in charge of UBS' wealth-management operation in the U.S. Hoekstra says the firm is in a growth stage — after all, the firm acquired Piper Jaffray's brokerage network this summer and, more recently, Cleveland-based McDonald Investments, KeyCorp bank's brokerage unit.

So it's not surprising that UBS reps gave some of their highest scores to the strategic focus and public image categories, which jumped from 7.0 to 8.3 and 7.8 to 8.7, respectively. “People are impressed with what Marten's doing. He's totally committed to the ultra-high-net-worth business and has a real focus on resources to enable teams such as mine to fulfill client needs,” says one UBS rep.

Happy Market, Happy Brokers

Of course, the market's performance didn't hurt this year's scores: The S&P 500 reached a six-year high and the Dow Jones set a record high in 2006. In short, the markets have climbed the proverbial wall of worry. It's only natural that reps should be more content. “If you can't be happy in your work environment in conditions like this, you may be in the wrong business,” Mendelson says.

In fact, securities industry profits for the first half of 2006 reached $15.3 billion and were the highest in six years, according the Securities Industry and Financial Markets Association (SIFMA, formerly SIA). You'd have to go all the way back to 2000, smack in the middle of the bull market, to find a better first-half performance. Profits in the second half of 2006 are expected to land somewhere around $10 billion. This would raise full-year 2006 results to $25.6 billion, bested only by 2000's profits of $31.6 billion, SIFMA says.

The overall Report Card scores reflect this: Every firm, except Wachovia and A.G. Edwards, notched a higher overall score this year than last. That brought the average overall score for the seven firms — (which doesn't include results from the compliance section — new this year) — up to 8.0 (out of 10) from 7.8 last year, marking only the second time the average score has gone up in five years.

The category that registered the most dramatic jump versus last year is quality of products and services: It rose to 8.5 from 7.9 last year — an 8 percent increase. It's also the only overall category where every firm scored at least an 8.0 (except for Wachovia, which scored a 7.9).

André Cappon, president of The CBM Group, a New York-based financial consulting group, explains that this is because they're all selling the same products. “This is not necessarily good for firms or their advisors because they're losing the differentiation factor.” The exclusivity of selling a unique, affordable product that performs well is gone, he says.

Compliance support, a category that is new to Registered Rep.'s Broker Report Card survey, took the lowest overall category score. It was also the weakest score at every single firm. Not surprising, really, considering the numbers of investigations and new rules that have come out in the past few years. Well, that's something for the firms to work on for next year.

Methodology: How this Survey Was Conducted

Registered Rep. commissioned J.D. Power and Associates to conduct its Annual Broker Report Card Study this year. 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 seven firms evaluated in the study. The research was conducted by Internet and phone in September and October 2006. Sample sizes range from 72 to 201 by firm. The total sample size for all firms is 920.

Reps rated their current employer on 27 items related to their satisfaction. Ratings are based on a 1-to-10 scale, with 10 representing the highest satisfaction levels. This year, a new set of questions was added in order to measure reps' satisfaction levels with compliance support. In addition, advisors were asked how likely they were to remain or leave their current employer and to report why they are likely to leave or stay.

REGISTERED REP.'S BROKER REPORT CARDS

Brokers rate their firms.

Most reps noted a lot of improvements at their firms this year. The cumulative average for all of the firms inched up, to 8.0 from 7.8. Reps at Morgan Stanley had the biggest impact on that rise, as they kicked their firm's overall score up almost 18 percent. Edward Jones took top honors, by far, gaining almost a point over rival A.G. Edwards, with which it was tied last year. And Smith Barney, which was neck and neck with Wachovia last year, pulled ahead. As usual, Merrill took third place behind A.G. Edwards and Edward Jones, but it was a very close third this year.

Reps at every firm, once again, reserved their highest marks for freedom from pressure to sell (9.1), but many were far more pleased this year than last with strategic focus, which registered the biggest increase overall (up to 8.2 from 7.5), followed by products and services (8.5 from 7.9), public image (8.5 from 7.9) and overall ethics (8.8 from 8.2)

The only category average that actually declined versus last year was realistic sales quotas, which slipped to 8.2 from 8.4, probably a reflection of the fact that many firms are putting pressure on reps to generate more revenue and bring in bigger clients, while laying off lower-end producers.

THE BIG PICTURE

How seven of the nation's largest brokerage firms stack up against each other.
FIRM A.G. Edwards Edward Jones Merrill Lynch Morgan Stanley Smith Barney UBS Wachovia All Firms
Overall Average 8.5 9.4 8.4 7.2 7.8 7.5 7.5 8.0
Work Environment 8.7 9.6 8.3 7.2 7.8 7.2 7.9 8.1
Freedom from pressure to sell certain products 9.6 9.8 9.0 8.3 9.1 9.0 8.6 9.1
Realistic sales quotas 8.9 9.7 8.3 7.3 8.1 7.4 7.6 8.2
Hiring and recruiting practices 7.7 9.2 7.5 6.4 7.4 7.0 7.2 7.5
Payout 8.2 9.1 7.6 6.5 6.7 6.1 8.0 7.4
Benefits 9.3 8.6 8.6 7.8 7.7 7.3 7.5 8.1
Support 8.4 9.5 8.3 6.8 7.5 7.0 6.9 7.8
Sales support 8.3 9.5 8.0 6.6 7.2 6.9 6.9 7.6
Quality of sales assistants 8.3 9.6 8.4 7.4 7.5 7.5 7.5 8.0
Quantity of sales assistants 7.8 9.7 7.3 6.3 6.7 6.7 6.5 7.2
Quality of sales ideas 8.2 9.3 8.1 6.8 7.4 7.2 7.1 7.7
Ongoing training 8.6 9.5 8.4 6.8 7.9 7.0 7.2 7.9
Technology/advisor workstation 8.5 8.8 9.0 6.7 8.2 7.0 6.9 7.9
Quality of operations 8.3 9.5 8.2 6.3 7.4 7.0 6.3 7.6
Account statements 8.0 9.3 8.3 5.7 8.0 6.7 6.9 7.6
Product 8.8 9.6 9.0 8.1 8.1 8.2 7.9 8.5
Quality of research 8.3 8.9 8.9 8.0 7.8 7.9 7.9 8.2
Fixed-income desk service 8.5 9.5 8.4 7.7 8.0 7.6 7.6 8.2
Quality of the products offered 8.9 9.6 9.0 8.1 8.2 8.3 8.2 8.6
Management 8.7 9.7 8.8 7.5 8.0 8.2 7.8 8.4
Your branch manager 8.0 9.6 8.1 7.9 7.9 7.8 7.7 8.0
Strategic focus 8.1 9.5 8.8 7.4 7.7 8.3 7.8 8.2
Overall ethics 9.4 9.9 8.9 7.9 8.4 8.7 8.5 8.8
Public image 8.8 9.6 8.7 7.4 7.9 8.7 8.1 8.5
Compliance 8.0 9.4 8.3 6.1 7.0 6.9 6.6 7.5
Risk management 7.9 9.5 8.4 6.6 7.6 7.5 7.1 7.8
Compliance-specific training 8.0 9.3 8.5 6.7 7.7 7.4 7.0 7.8
Administrative burden 6.6 9.2 7.0 5.2 5.6 5.5 5.5 6.4

Merrill Lynch: The Trend Is Its Friend

When it comes to defining success in the financial-advisory business, one needn't look any further than Merrill Lynch. Merrill, the nation's largest brokerage firm, has been a consistent leader in revenue, earnings growth, pretax operating profit margin, number of financial advisors and revenue per FA. Among the wirehouse firms, it has the most fee-based assets, which is now considered the “holy grail” for most retail firms.

Things are getting even better at Merrill. In October, the firm closed the largest asset-management deal in history when it handed over the reins of its mutual fund unit to BlackRock in exchange for a 49.8 percent stake in the combined firm. The move signaled a major stride towards eliminating the conflicts of interest inherent in selling proprietary products and gave the firm's advisors access to top-performing bond funds and international funds. It also delivered an immediate boost to its already fat bottom line. Last year, Merrill overhauled its wealth-management technology platform, streamlined its account statements and brought more structured products and alternative investments to market.

Merrill reps are pretty jazzed about all the changes that are afoot. Registered Rep.'s 2006 Broker Report Card Survey shows that broker satisfaction has risen to an 8.4 score overall, a decent bump up from the 8.1 it posted last year, and significantly higher than the 7.7 score it received in 2004. The higher grade puts Merrill in third place behind perennial champion Edward Jones (9.4) and A.G. Edwards (8.5).

In the past, many reps gave Merrill lower scores for sales support, hiring and recruiting practices and fixed-income pricing. Another area of weakness was payout, as evidenced by reps grousing about so-called “haircuts.”

Particular areas of improvement for Merrill this year were the quality of products offered — a likely benefit of the BlackRock deal — and quantity of sales assistants. Quality of products jumped to 9.0, up from 8.5 in 2005, both the firm's highest score and the category with the biggest improvement. “It's the best company with the best platform,” one Merrill rep states simply. Meanwhile, quantity of sales assistants rose to 7.3 from 6.5 last year. Still, sales support overall remains a weakness, reps say.

Strategic focus was another area that got quite a boost, heading to 8.8 from 8.1 last year. “Product lineup, business continuity, the firm's strategic direction and the firm's reputation are the primary reasons I will be here for the duration of my career,” says another rep.

Of course, some reps continue to trot out the same old complaints. “Haircuts, lack of support and diversity issues” are the reasons one survey respondent cited as issues that might push him to decamp for another outfit. Another rep grouses that Merrill is just “not adding enough value for taking 60 percent” of production.

But that doesn't mean that he's tempted to hang his own shingle, like so many other brokers have done in the past few years. “The only other option would be to go independent, but in this type of compliance environment there is too much risk,” says the rep.

Even in a recruiting environment where signing bonuses from rival firms are skyrocketing, most Merrill advisors still choose to stay put. “The leverage I have working for Merrill is worth more than any short-term compensation the competition can offer,” says one rep.

In short, Merrill's doing a pretty good job of keeping its reps happy. Perhaps next year will be even rosier. — Kevin Burke

Merrill Lynch at a Glance

Total client assets: $1.5 trillion

Number of brokers: 15,700

Average production per broker: $719,745

Pretax profit margin: 19.6%

Mascot: Bull

Best management move: Spinning off MLIM for nearly half of BlackRock

Worst management move: Acquiring Advest

MERRILL LYNCH
Score All Firms
Overall Average 8.4 8.0
Work Environment 8.3 8.1
Freedom from pressure to sell certain products 9.0 9.1
Realistic sales quotas 8.3 8.2
Hiring and recruiting practices 7.5 7.5
Payout 7.6 7.4
Benefits 8.6 8.1
Support 8.3 7.8
Sales support 8.0 7.6
Quality of sales assistants 8.4 8.0
Quantity of sales assistants 7.3 7.2
Quality of sales ideas 8.1 7.7
Ongoing training 8.4 7.9
Technology/advisor workstation 9.0 7.9
Quality of operations 8.2 7.6
Account statements 8.3 7.6
Product 9.0 8.5
Quality of research 8.9 8.2
Fixed-income desk service 8.4 8.2
Quality of the products offered 9.0 8.6
Management 8.8 8.4
Your branch manager 8.1 8.0
Strategic focus 8.8 8.2
Overall ethics 8.9 8.8
Public image 8.7 8.5
Compliance 8.3 7.5
Risk management 8.4 7.8
Compliance-specific training 8.5 7.8
Administrative burden 7.0 6.4

Smith Barney: Pay Is Pet Peeve at Wirehouse Runner-Up

Overall, Smith Barney reps rated their firm a 7.8 in this year's Broker Report Card Survey (second only to Merrill among the wirehouses), up from 7.5 last year. This suggests things are going smoothly since the firm acquired Legg Mason. Smith Barney has made great strides in improving its fixed-income desk and its research department. Weaknesses last year, these categories bumped up to 8 from 6.9, and 7.8 from 6.7, respectively. Overall ethics and public perception also got nice boosts in the ratings (overall ethics scored an 8.4; public perception scored 7.9). But the highest score brokers gave Smith Barney was a 9.1 for freedom from pressure to sell certain products, much like at other firms.

Despite all this, Smith Barney's reps still have a bone to pick with their employer. They continually give the firm low marks when it comes to compensation. Smith Barney reps rated the firm a 6.7 for payout, down from 7.0 last year. The lower score could, in part, reflect the firm's decision last January to cut commissions for producers below a certain threshold.

Smith Barney has always been a hard place to recruit away from, says one recruiter, and it's enjoyed a steady retention rate; so advisors say perhaps management doesn't have much incentive to pay them a higher percentage of production on the grid. That could change.

Smith Barney reported that its broker headcount fell to 13,076 reps in the third quarter, down from 13,414 at the beginning of this year. That's despite picking up Legg Mason's brokerage operations, which included more than 1,000 reps. “We're seeing guys who've been here for 20 or 30 years just picking up and leaving,” says a New York-based rep who left Smith Barney two months ago to work for a regional broker/dealer. Morgan Stanley and Wachovia have poached a handful of top producers.

One Smith Barney rep in the Northeast says that the firm's “poor sales support, training and compensation” would be enough to prompt him to switch to the independent channel. Still another rep says payout and pressures of quotas are sources of aggravation, but not enough to make him leave. Advisors rated the quality of sales assistants a 7.9, up from 7.3 last year. The quantity of sales assistants also saw some improvement, ramping up to 6.7 from 6.0.

Charles Johnston, chief executive and president of Smith Barney's global private client group, says the additional reps the firm lost this year are primarily Legg Mason defectors and lower-end producers, and insists that the firm has had one of the most stable headcounts of any firm on Wall Street over the past six years — a better gauge of its long-term success at serving reps. Johnston also concedes that the firm may not have the highest maximum payout on a simple grid. However, he claims rival firms take more out here and there with ticket charges and zero payment on small accounts and, in general, nickel and dime their reps. He adds that maybe Smith Barney needs to do a better job at selling this story to its reps.

In an effort to give its reps access to bank products and streamline operations and platforms, parent Citigroup is integrating its consumer-banking and retail-brokerage units, a massive effort that will include turning about 700 brokers at Citigroup Investment Services into Smith Barney financial advisors. Of course, that isn't likely to appease reps on the pay issue. But maybe Johnston will get his version of that story out to reps. Especially if more reps head for the exits. — KB

Smith Barney at a Glance

Total client assets: $1.17 trillion

Number of brokers: 13,076

Average production per broker: $609,972

Pretax profit margin: 18%

Mascot:Red Umbrella

Bragging rights: Fee-based assets soared to $322 billion.

Black eye: 100 reps falsely claimed customers were disabled in order to waive fund fees.

SMITH BARNEY
Score All Firms
Overall Average 7.8 8.0
Work Environment 7.8 8.1
Freedom from pressure to sell certain products 9.1 9.1
Realistic sales quotas 8.1 8.2
Hiring and recruiting practices 7.4 7.5
Payout 6.7 7.4
Benefits 7.7 8.1
Support 7.5 7.8
Sales support 7.2 7.6
Quality of sales assistants 7.5 8.0
Quantity of sales assistants 6.7 7.2
Quality of sales ideas 7.4 7.7
Ongoing training 7.9 7.9
Technology/advisor workstation 8.2 8.2
Quality of operations 7.4 7.6
Account statements 8.0 7.6
Product 8.1 8.5
Quality of research 7.8 8.2
Fixed-income desk service 8.0 8.2
Quality of the products offered 8.2 8.6
Management 8.0 8.4
Your branch manager 7.9 8.0
Strategic focus 7.7 8.2
Overall ethics 8.4 8.8
Public image 7.9 8.5
Compliance 7.0 7.5
Risk management 7.6 7.8
Compliance-specific training 7.7 7.8
Administrative burden 5.6 6.4

Morgan Stanley: The Resurrection

Morgan Stanley is climbing back out of the hole it dug for itself over the past three years. Of all the firms ranked, Morgan showed the most dramatic change in its overall score, which jumped to 7.2 from 6.1 last year. Admittedly, Morgan is still at the bottom of the heap, and well below it's 2002 score of nearly 8.0, but it's rapidly closing the gap, and, this year, it's not far behind Wachovia and UBS.

The change in morale among Morgan brokers is perceptible. “I could not be happier,” says one broker who claims to be the cynical type. That's not a sentiment you would have heard at this time last year, when the fate of the retail brokerage still seemed to hang in the balance, recent cuts to lower producers were fresh in memory and new retail chief James Gorman had not yet come on board.

Indeed, brokers overwhelmingly give credit for the change of heart to their new management — not just Mack and Gorman, but the new regional and divisional managers that Gorman has hired since he took the position last February. “From the top down we have a whole new management team, and they get it,” says another Morgan broker. “The other guys were basically there to maintain the status quo and they were part of the boys club that [former CEO Philip] Purcell had created. And John Mack came in and wanted to capture the old Morgan Stanley culture — and that's basically an entrepreneurial spirit, and rewarding success,” he says.

It shows in the numbers. Hiring and recruiting practices rose to 6.4 from 4.7, ongoing training leapt to 6.8 from 4.8 and quality of sales ideas and quality of products offered climbed to 6.8 and 8.1, respectively, from 5.8 and 7.0 the previous year. Payout was up to 6.5 from 5.3 — and that was even before recent changes to the firm's compensation plan were announced in early November (see page 26).

That said, there are some negative reviews, too. Unfortunately, even Morgan's highest scores are still behind the average for its peers. Morgan brokers rated freedom from pressure to sell certain products an 8.3, versus the overall average of 9.1. Quality of products sat at 8.1, versus 9.1 for all firms. Quality of research hit 8.0, versus 8.2 for the rest of the firms. And branch manager and overall ethics were both at 7.9, versus group averages of 8.0 and 8.8, respectively.

And, of course, reps still have complaints. “I think Gorman's cut a lot of programs,” says one Morgan broker. “Ninety percent of it was justified, but they haven't replaced those yet. I'd like to see them invest in the FAs a little bit more. It's great they're recruiting, but you have to reward the people who have stuck with you. Going forward it will be about providing more education and being able to offer more services,” he says. In particular, the broker says Gorman cut the firm's wealth advisor and practice-management training programs. “We're waiting for someone to help us grow our business,” the broker says.

The lowest scores the firm received went to account statements, at 5.7 versus an average of 7.6 for all firms, and reduction of administrative burden, which took a 5.2 rating, compared to 6.4 for all firms. But overall, advisors seem to be optimistic. One advisor said he, personally, has no problem with the account statements. “I know they are spending a lot of money on technology, and I see progress every day,” he says. — Kristen French

Morgan Stanley at a Glance:

Total client assets: $652 billion

Number of brokers: 8,069

Average production per broker: $675,000

Pretax profit margin: (Q4'05 - Q4'06) 8%

Mascot: The Blue Right Triangle

Best management move:New compensation perks

Most memorable speech: James Gorman says executives have to be “brutal” about forcing out low-end brokers.

MORGAN STANLEY
Score All Firms
Overall Average 7.2 8.0
Work Environment 7.2 8.1
Freedom from pressure to sell certain products 8.3 9.1
Realistic sales quotas 7.3 8.2
Hiring and recruiting practices 6.4 7.5
Payout 6.5 7.4
Benefits 7.8 8.1
Support 6.8 7.8
Sales support 6.6 7.6
Quality of sales assistants 7.4 8.0
Quantity of sales assistants 6.3 7.2
Quality of sales ideas 6.8 7.7
Ongoing training 6.8 7.9
Technology/advisor workstation 6.7 7.9
Quality of operations 6.3 7.6
Account statements 5.7 7.6
Product 8.1 8.5
Quality of research 8.0 8.2
Fixed-income desk service 7.7 8.2
Quality of the products offered 8.1 8.6
Management 7.5 8.4
Your branch manager 7.9 8.0
Strategic focus 7.4 8.2
Overall ethics 7.9 8.8
Public image 7.4 8.5
Compliance 6.1 7.5
Risk management 6.6 7.8
Compliance-specific training 6.7 7.8
Administrative burden 5.2 6.4

UBS: Investing Long-Term

In a reversal from last year, advisors at UBS were more enthusiastic about their employer in nearly every category, and the firm's total average score jumped to 7.5 from 7.1. Still, most of the rating increases were incremental and not dramatic enough to allow UBS to overtake any of its peers. The firm's ratings improved most in categories like management and products and services, where most other firms improved, too. Granted, the firm tied for sixth place with Wachovia Securities, but most of the advisors polled seem to think the firm is on the right track.

It's certainly encouraging that the firm's Swiss parent is throwing money at it, with $800 million spent on the acquisition of Piper Jaffray's brokerage unit and McDonald Investment Group, which added more than 1,000 reps. Those purchases brought $80 billion in new assets to its U.S. brokerage business this year. Naturally, it shows a commitment to growth that UBS reps applaud.

Reps' biggest complaints revolve around the firm's payout and sales support-related issues (although even here, grades rose versus last year). Perennially an issue at UBS (and everywhere else), advisors still wish their paychecks were bigger. Payout (6.1), the firm's second-lowest rating, was also the lowest score any firm received in that category. Only the firm's efforts to reduce the administrative burden of compliance duties rated worse among brokers this year (5.5).

Reps at UBS get paid 3 percent more on wrap-account revenue, a fact that irks the stock jockeys. Why fight it? It's the new regime: Transactions are out, fee-based assets are in; and while revenue production is still revered, growth (gathering assets) is king. Those who don't grow are punished. Reps with five to 10 years at the firm producing $200,000 or less in revenue in the previous year are paid out at a measly 24 percent.

But those in safer territory complain, too. One $320,000 producer in Florida who has been with the firm for five years says his payout should be 33 percent, but it's about 29 percent after ticket charges “and all the other fine print.” One recruiter confirms that the firm's grid is “way too complicated.”

Yet most reps still think highly of the firm and its leaders. Branch managers maintained their 7.8 rating from last year. Meanwhile, higher ratings for strategic focus (8.3, up from 7.0), overall ethics (8.7, up from 7.9) and public image (8.7, up from 7.8) illustrate a growing confidence in the firm's direction. Reps also like the firm's “You and US” ad campaign, which seems to be playing well to the investing public.

Some of the good vibe can be credited to Marten Hoekstra, the head of Wealth Management U.S. In the words of one top producer, “Marty's been Swiss cheesed.” He and others say Hoekstra's Paine Webber pedigree, combined with his time in Switzerland, lend him a measure of credibility and trust among the ranks. Some successes can't be ignored: not one, but two successful — so far anyway — acquisitions of roughly 1,000 reps through purchases of brokerage operations from Piper Jaffray and McDonald Investments; average production among UBS reps is now near $600,000 per advisor, not far behind Merrill Lynch; and of the wirehouses, only Merrill has brought in more net new assets in 2006, according to Citigroup analyst Jeremy Sigee. “It's the five-year plan,” says one rep. “Right now we're the least profitable branch of UBS, but the firm is becoming a lot more focused on making Wealth Management [U.S.] grow,” he says. — John Churchill

UBS at a Glance

Total client assets: $716 billion

Number of brokers: 7,856

Average production per broker: $604,000

Pretax profit margin: 8.65%

Mascot: Three keys symbolizing trust, security and discretion.

Best management move: The “You & Us” advertisements

Best “market” call: Research staff picked the Italian soccer team to win the World Cup.

UBS
Score All Firms
Overall Average 7.5 8.0
Work Environment 7.2 8.1
Freedom from pressure to sell certain products 9.0 9.1
Realistic sales quotas 7.4 8.2
Hiring and recruiting practices 7.0 7.5
Payout 6.1 7.4
Benefits 7.3 8.1
Support 7.0 7.8
Sales support 6.9 7.6
Quality of sales assistants 7.5 8.0
Quantity of sales assistants 6.7 7.2
Quality of sales ideas 7.2 7.7
Ongoing training 7.0 7.9
Technology/advisor workstation 7.0 7.9
Quality of operations 7.0 7.6
Account statements 6.7 7.6
Product 8.2 8.5
Quality of research 7.9 8.2
Fixed-income desk service 7.6 8.2
Quality of the products offered 8.3 8.6
Management 8.2 8.4
Your branch manager 7.8 8.0
Strategic focus 8.3 8.2
Overall ethics 8.7 8.8
Public image 8.7 8.5
Compliance 6.9 7.5
Risk management 7.5 7.8
Compliance-specific training 7.4 7.8
Administrative burden 5.5 6.4

Edward Jones: Hometown Favorite (Again)

You have to wonder what keeps Edward Jones reps so happy year after year. Look back just five years ago, arguably one of the toughest times to be in the business, and you'll find the firm's score was still well ahead of its competitors'. And it seems the only reps without something good to say about Edward Jones are those that don't work there. Often cast as simple, Midwest folk, the reps at Jones embrace their un-Wall Street-like culture and say there isn't too much they'd change about their firm.

Says one Jones rep, “Jones is the gold standard” in the financial-services industry. “Their total and complete focus on putting the client first is why I always see myself working for them.” That kind of employee loyalty has won the firm the top spot in Registered Rep.'s Broker Report Card Survey for the 14th consecutive year. And though last year the firm shared the top spot with Midwest neighbor A.G. Edwards, this time the firm blows away the competition with a 9.4 overall score. The No. 2 spot is held by A.G. Edwards, which stands almost a full point lower at 8.5 for its overall score.

Reps gave Edward Jones better marks in every single category this year — most notably strategic focus, which jumped to 9.4 from 8.6. Almost a year after being named managing principal of the firm, Jim Weddle appears to be having an impact on broker morale. “Jim Weddle used to be a broker and worked in headquarters before,” says one Jones veteran. “He's well known and well liked, and there's been an increase in the numbers since he's been here.”

U.S. rep headcount at the firm grew just over 5 percent in 2006 with about 9,500 reps, lower than the firm's 20-year average of 12 percent, but still promising, according to Dan Timm, managing partner of sales, hiring and training. Reps' response, in any case, is a positive one. The firm's hiring and recruiting score jumped to 9.2, up from 8.5 last year — the highest score for this category among all firms. “Jim added new energy and invigorated the sales force and home office as well,” Timm says.

One newbie Jones rep, who wrapped up the firm's four-month training program less than a year ago, says he's already been approached by competing firms' recruiters trying to get him to make a switch. “I think the training I got here is next to none, and headhunters know that I have the Jones training,” he says. The 29-year-old rep says he'll probably stay with the firm for many years because of the great support he gets, not only from the home office but from veteran brokers as well.

If there is one thing Jones reps do fret about (gasp!) — it's that the quality of technology at the firm is not up to snuff with the technology at other firms, they say. In fact, until this year, Edward Jones was using satellite technology and only recently made the change to high-speed Internet. Luckily, the firm just keeps on upgrading. “If you ask me ‘Is the firm where I would like them to be?’, I'd say, ‘Not yet, but it's all right around the corner’,” says the Jones newbie.

So what of the Wall Street gossip? Some say Edward Jones is too laid back and its buy-and-hold strategy is too simplistic. But Jones reps don't seem to mind, and some even agree with chatter. “We buy good things we know about and understand and hold onto them unless there's a good reason not to,” says one rep. — HT

Edward Jones at a Glance

Total client assets: $396 billion

Number of brokers: 9,030

Average production per broker: $273,384

Pretax profit margin: 11%

MVP: Jim Weddle

EDWARD JONES
Score All Firms
Overall Average 9.4 8.0
Work Environment 9.6 8.1
Freedom from pressure to sell certain products 9.8 9.1
Realistic sales quotas 9.7 8.2
Hiring and recruiting practices 9.2 7.5
Payout 9.1 7.4
Benefits 8.6 8.1
Support 9.5 7.8
Sales support 9.5 7.6
Quality of sales assistants 9.6 8.0
Quantity of sales assistants 9.7 7.2
Quality of sales ideas 9.3 7.7
Ongoing training 9.5 7.9
Technology/advisor workstation 8.8 7.9
Quality of operations 9.5 7.6
Account statements 9.3 7.6
Product 9.6 8.5
Quality of research 8.9 8.2
Fixed-income desk service 9.5 8.2
Quality of the products offered 9.6 8.6
Management 9.7 8.4
Your branch manager 9.6 8.0
Strategic focus 9.5 8.2
Overall ethics 9.9 8.8
Public image 9.6 8.5
Compliance 9.4 7.5
Risk management 9.5 7.8
Compliance-specific training 9.3 7.8
Administrative burden 9.2 6.4

Wachovia: Unsettled Again

Wachovia Securities financial advisors lost some of their enthusiasm for the firm in 2006, and it slipped a notch in its report-card ranking as a result. (Last year, Wachovia finally recovered from the headaches of its integration with Prudential Securities, and FAs bumped the firm into fourth place overall, behind Merrill Lynch.) This year, Wachovia's overall ranking declined by almost a half point, to 7.5 from 7.9 in 2005. Wachovia is now trailing Smith Barney and tied with UBS in our annual survey.

So what happened? The key change in leadership at the start of the year — James Hays took over as retail chief and his predecessor James Donley retired — may have something to do with it. Advisors are probably nervous about Hays because he hails from Merrill Lynch, explains one advisor, who works on the quasi-independent Profit Formula platform. “A lot of folks, they loved James Donley,” he says. “It makes people nervous to see someone coming from Merrill, because we've always seen our culture as being a little different, a little more broker-friendly. And like it or not, among many of our peers here at Wachovia, Mother Merrill represents everything we hoped Wachovia could avoid — being a much too corporate environment where top brass doesn't care much about the brokers.” (All assessments Merrill would strenuously deny; indeed, its advisor satisfaction ranking rose this year. Turn to page 46 for more information.)

That said, not much has changed in the few months that Hays has been at the firm, the advisor says, so the jury is still out. Wachovia still wins top marks for work environment and compensation: It scored 7.9 in this category, versus 8.0 last year, and 8.1 for all firms. And advisors seem to be very satisfied with payout, the only category in which Wachovia actually beat the firmwide average — 8.0 for Wachovia versus 7.4 for all firms. There is an easy explanation. Last year, Wachovia vastly simplified its payout grid, so that brokers get 20 basis points on the first $9,000 in production every month, plus 50 basis points on every dollar after that. The firm made some additional tweaks last December, adding a new “growth-rate” bonus of 2 percent of production for those beating the previous year's commissions and fees by 15 percent. Top brokers, meanwhile, will have to bring in $1.2 million (rather than $1 million) to get a bonus equal to 5 percent of production. And the bonus tied to fee-based business drops to 1 percent.

Wachovia took its weakest marks this year for sales and compliance support, with grades of 6.9 and 6.6, respectively. One advisor who works in the full-employee branch network says that he has more tests to take and more reports to fill out this year than last, and that to get more sales support to get these things done, he has to pay for it. “They can say the regulatory environment is the reason, but the bottom line is we do more work,” he says.

Two categories that declined a lot versus 2005 were freedom from pressure to sell certain products, which dropped to 8.6 from 9.1 last year, and quality of research, which fell to 7.9 from 9.2. An advisor on the Profit Formula platform says that the lower marks for sales pressure may be a reaction to management's relentless promotion of its Envision Monte-Carlo simulation software. “People say they're jamming it down our throats. But I think it's a great tool. It doesn't bother me at all,” he says. — KF

Wachovia at a Glance:

Total client assets (Capital Management Group): $730 billion

Number of brokers: 7,950

Average production per broker: $617,000

Pretax profit margin: 24.5%

Mascot: Sea wave

Biggest management move: Hiring James Hays as head of retail operation.

Most recent regulatory settlement: October 2006, fined $300,000 for failure to supervise a broker who stole from clients.

WACHOVIA
Score All Firms
Overall Average 7.5 8.0
Work Environment 7.9 8.1
Freedom from pressure to sell certain products 8.6 9.1
Realistic sales quotas 7.6 8.2
Hiring and recruiting practices 7.2 7.5
Payout 8.0 7.4
Benefits 7.5 8.1
Support 6.9 7.8
Sales support 6.9 7.6
Quality of sales assistants 7.5 8.0
Quantity of sales assistants 6.5 7.2
Quality of sales ideas 7.1 7.7
Ongoing training 7.2 7.9
Technology/advisor workstation 6.9 7.9
Quality of operations 6.3 7.6
Account statements 6.9 7.6
Product 7.9 8.5
Quality of research 7.9 8.2
Fixed-income desk service 7.6 8.2
Quality of the products offered 8.2 8.6
Management 7.8 8.4
Your branch manager 7.7 8.0
Strategic focus 7.8 8.2
Overall ethics 8.5 8.8
Public image 8.1 8.5
Compliance 6.6 7.5
Risk management 7.1 7.8
Compliance-specific training 7.0 7.8
Administrative burden 5.5 6.4

A.G. Edwards: We Love You But…

A.G. Edwards, like its crosstown rival, Edward Jones, is one of those places for which employees show so much enthusiasm that they are said to have sipped the Kool-Aid. For that very reason, the dip in its ratings comes as quite a surprise: the firm's score in almost every category dropped between 1 percent and 10 percent, and its overall grade of 8.5 is off 4 percent from last year's 8.8. That said, Edwards still occupies second place among the seven largest national brokerage houses.

It might just be that Edwards reps are feeling Merrill Lynch's hot breath on their collective necks. Surprisingly, Merrill Lynch jumped to within one-tenth of a point of A.G. Edwards in all-around broker satisfaction this year. And that's saying something, considering A.G. Edwards' employees are known to be a contented lot. Typical of the responses this year: “The firm really has everything to offer that I need, and I can't imagine anyone else doing it better,” says one rep.

Other reps there apparently agree, since the firm scored second best among firms (behind Edward Jones) in the overall sales support category.

A.G. Edwards dropped nearly 6 percent, however, in the overall work environment and compensation category, to 8.7 from 9.2 last year. One source of resentment: In March, the firm decreased the bonuses tied to production, while at the same time increasing the production levels required to get bonuses. That could explain why the firm's payout score dropped to 8.2 this year from 9.1 last year.

A.G. Edwards' other big failing was hiring and recruiting practices, which scored 7.7, down from 8.5 last year. One Edwards rep explains that the firm's sign-on bonuses aren't up to par with those at other firms. The rep says that he can picture “staying with A.G. Edwards forever,” but plans on switching to another firm nonetheless — one with a culture that is similar to that of A.G. Edwards.

And yet, A.G. Edwards has a lot going for it this year. For one, reps gave the firm a score of 9.4 for overall ethics, a score that is second only to the one received by Edward Jones. Given that it's one of only three categories for which scores did not decline this year at A.G. Edwards (the other two are benefits and quality of research — all three kept the same scores from last year), it's safe to say Edwards reps remain content with the firm's Midwest values. And sometimes values trump even the most jaw-dropping of sign-on bonuses.

One Edwards rep who came over from a wirehouse competitor says she was being offered sign-on bonuses of up to $3 million by recruiters when she was shopping around for a new firm. She says Edwards' noncompetitive bonus did not deter her from joining the firm one bit. “I didn't take the large sign-on bonuses because I knew A.G. Edwards had integrity. I have a lot of respect for this firm and it was a very good move for me,” she says.

In the end, the drop in A.G. Edwards' overall score may prove to be a blip on the radar. After all, it still ranks above the average for all firms. One veteran Edwards rep says the decline in hiring and recruiting practices and payout scores won't make him any less loyal to his firm. “I stay with A.G. Edwards because I like the firm. It's the only place I can run my business like it's my own without going independent,” he says. — HT

AGE at a Glance

Total client assets: $354 billion

Number of brokers: 6,666

Average production per broker: $427,962

Pretax profit margin: 15.3%

Mascot: (Nest) Egg

Best $20 million spent: Nest-egg ad campaign

A.G. EDWARDS
Score All Firms
Overall Average 8.5 8.0
Work Environment 8.7 8.1
Freedom from pressure to sell certain products 9.6 9.1
Realistic sales quotas 8.9 8.2
Hiring and recruiting practices 7.7 7.5
Payout 8.2 7.4
Benefits 9.3 8.1
Support 8.4 7.8
Sales support 8.3 7.6
Quality of sales assistants 8.3 8.0
Quantity of sales assistants 7.8 7.2
Quality of sales ideas 8.2 7.7
Ongoing training 8.6 7.9
Technology/advisor workstation 8.5 7.9
Quality of operations 8.3 7.6
Account statements 8.0 7.6
Product 8.8 8.5
Quality of research 8.3 8.2
Fixed-income desk service 8.5 8.2
Quality of the products offered 8.9 8.6
Management 8.7 8.4
Your branch manager 8.0 8.0
Strategic focus 8.1 8.2
Overall ethics 9.4 8.8
Public image 8.8 8.5
Compliance 8.0 7.5
Risk management 7.9 7.8
Compliance-specific training 8.0 7.8
Administrative burden 6.6 6.4