Light A Candle, or Curse the Darkness

Someday, the year 2002 will be considered an inflection point, a time when everything that could go wrong, did go wrong — a year of profound change. For brokers and financial advisors, it may also be remembered as the year in which those who knew they had the right stuff redoubled their efforts to elevate their skills and become the kind of advisors who could survive the bear market and build a 21st century practice.

“One thing I think about is that if I made it through the last three years, I can make it through any market,” says one Salomon Smith Barney producer, who concentrates on fee-based business. “If you can get through the worst market in 50 years and still do pretty well, it should only be up from here.”

Not that anybody is out of the woods yet. Investors are still skittish about the markets. And there is the unfinished business of restoring confidence in Corporate America and the brokerage houses that appear to have been willing partners with books-cooking, self-dealing CEOs, while the public watched their savings disappear.

Brokers have been caught in the crossfire and are concerned about how the research and IPO scandals involving their firms affect their relations with clients. According to Registered Rep.'s 12th Annual Broker Report Card Survey (see story page 31), there exists a common concern about the tarnished reputation of firms. This year, answers to questions about “quality of research” and “overall image” averaged 7.05 and 7.71, down from an average of 7.54 and 8.54 last year.

Brokers have seen their own reputations damaged, too. The public's trust in brokers, which was not great to begin with, declined in 2002, as various surveys showed; for instance, the SIA recently reported that just 9 percent of investors had a favorable view of the industry, down from 29 percent in 2000. “You were a hero and now you're a heel,” says one Merrill Lynch broker, looking back on the year. “People thought you were making them money and now it's clear that the bull market was making them money.”

The grimmest signs of the times are the employment and compensation numbers on Wall Street. Employment in the securities industry declined sharply, dropping 9 percent in the last three years, according to the Securities Industry Association, the worst decline since the early 1970s. Gross revenue for SIA member firms was down 25 percent over the last 18 months and broker earnings have contracted. Average gross production declined to $342,000 in 2001 from $485,478 in 2000, according to the CEG Group — and the market worsened since then. Lower-tier producers across the board are struggling to remain in business. “It's a difficult economy and a difficult market, and most clients didn't want to hear from us,” said one former broker now working as a wholesaler.

“It's almost like a revolving door around here,” says one A.G. Edwards broker. “I see people leaving, getting washed out — if you don't meet production levels you get put on probation, you start having to pay parking fees, things like that.”

But as brokerage companies weed out poor performers and struggling brokers throw in the towel, the men and women left standing are ready to move ahead when the markets do. These people have kept their practices afloat through innovation, adaptation (and a good deal of perspiration).

Whether they're making the transition to a fee-based, managed money approach, trading discretionary accounts for wealthy clients or sticking with a transaction-oriented style, these survivors have something in common. They have become more than what they were: true counselors, who really put their time and effort into helping clients create financial plans, allocate investments appropriately and choose the right stocks, funds and/or managers.

And these advisors are dealing with more financial issues than portfolio management. They're selling insurance, loans and mortgages and learning estate planning. “I “I told clients at the beginning of the year, you're not a client unless when you think of money, my name comes into your mind, and you give me a call,” says Daniel Yasharel of the APF Group in Los Angeles. He's helped clients this year by availing them of his advice when it comes to mortgage refinancings, referrals for attorneys and CPAs, and even discount airline fare.

The push to move clients into managed account programs remains the biggest force for change in the lives of brokers. But, despite the incentives by management to use managed accounts (including increasing the payouts on fee-based accounts), many brokers are reluctant to go all the way. Some say they fear losing influence with their clients if they only pick investment managers, rather than actual investments. And there is the very real fear of loss of income: “If I change everything I'm doing, I won't eat for a couple of months or maybe a couple of years,” says one Prudential securities broker. “There's still a place for the transactional-type person.”

But the bear market has crushed a lot of resistance. The most obvious reason: Clients looking to preserve what's left of their portfolios have not been trading. “I'm an old dog,” says one Smith Barney broker who is now moving into fee-based accounts. “I can see I should have been doing this 10 years ago.”

Also, now it is more practical to bring individually managed accounts to the mass investing public, folks with portfolios of $100,000 to $500,000. That's possible because of technology that allows managers to mind each client's tax situation, risk tolerance and other issues. “The holy grail is to have the capability of being able to reach into the toolbox of any manager or any vehicle and implement that into an overall investment strategy,” says Frank Campanale, head of Salomon Smith Barney Consulting Group.

Still, the shift is fraught with peril. “It takes a long time to build,” says New York-based recruiter Mark Elzweig. “Brokers find that when they want to get into that they have to get new clients. Not all of their clients are potentially convertible, and the firms themselves have, to some degree, cut back on the resources that brokers have to build those businesses.”

The Outlook

Don't count on Mr. Market to bring back those fat 1990s paychecks. Recent rallies don't guarantee that the market will break its losing streak in 2003. Sure, history says the death of the bear is overdue, but the brokers who bet on historical patterns in 2002 were burned. “I should have known [the market] was going down when I heard wholesalers say it's never gone down three years in a row since the Depression,” sniffs one Merrill broker. “Well, guess what? It went down even further.” With the economic recovery and corporate earnings situations still on shaky ground, 2003 doesn't, at first blush, appear to have the makings of a rip-roaring year.

Still, advisors interviewed for this article say that they are cautiously optimistic and do sense an uptick in client sentiment. Kenneth Roberts, principal at Harbor Lights Financial/Royal Alliance in Toms River, N.J., says this year he told clients, “‘At this point in time, I'd rather earn you 1 percent or zero than lose you 5 percent or 6.’ But moving forward, there's a reasonable amount of opportunity, given the valuations that we've seen.”

The opportunity may only be available, however, to brokers who can deliver comprehensive financial counsel. “I expect out of this will come a healthy respect for good investment advice,” says Deborah Stavis, head of Stavis/Margolis Advisory in Houston. “We're still in the ‘dirty rinse’ cycle. There were a lot of careers made in the excesses that looked brilliant but they never had a serious respect for preserving capital.”

Indeed, the brokers who only succeeded by riding the rising tide of the market are in peril — or already gone. Firms know they will lose client assets unless brokers have the savvy to help clients make long-range plans and preserve capital in bad times.

At the direction of James Gorman, head of Merrill's private client group, brokers have to concentrate more on a consultative approach, calling top clients once a month, and meet quarterly face-to-face. He has noted that too many brokers put too much energy into the six months it takes to woo a client and too little into keeping them over the next 10 years. “We have not been consistently giving good advice,” he said at a recent SIA conference in Chicago.

For all the new demands on brokers, however, respondents to this year's Registered Rep. Broker Report Card Survey say some old problems are disappearing. For example, they gave high marks for “freedom from pressure to sell certain products,” an indication that firms are not pushing proprietary products as much as in the past. Many also cited decreased pressure to meet quotas, although there's been more pressure for brokers to use fee-based approaches to drive revenue.

That long-term move toward the advisory approach won't go away, brokers acknowledge:

“Get off the gerbil wheel of performance,” says one Deutsche Bank producer. “This is an inevitable part of the evolution of a stockbroker. We're still in the early stages of evolving.”

Brokers rate their firms.

Brokers don't feel quite as sunny about their firms this year as in past years. Scores fell across the board in Registered Rep.'s 12th Brokerage Report Card Survey, with only two firms showing overall improvement — Wachovia and Edward Jones. Once again, the highest overall average was at Edward Jones, which earned the top score in 17 of the 19 categories in which it was rated. (With no branch managers, the firm received no score in that category.)

Meanwhile, the bear market and crisis of confidence in the capital markets manifested itself in generally lower scores across the board, but also in a few categories in particular. The bear market and subsequent cost cutting by firms is taking its toll on brokers, as the category with the lowest overall average this year was “quantity of sales assistants,” coming in at 6.70, down from 6.82 last year.

The sixth-lowest score was “payout,” with an overall average of 7.46. But that's actually an improvement from last year's 6.84. Another cost-related measure bothering brokers was fixed income pricing, with reps at most firms saying they get the short end of the stick when it comes to bond pricing. That category was tied for fourth-lowest.

The analyst-related scandals took their toll, with Salomon Smith Barney, predictably, suffering the biggest hit. Research scored an average 7.05, the second-lowest score.

Not unexpectedly, broker confidence in their firm's image declined to 7.71 from 8.54. Freedom from pressure to sell certain products rated the highest overall, with an average of 9.05. Every firm scored an 8 or better in that category.

Methodology: How the Firms Were Surveyed

Rep. polled 400 brokers in September and October. The first 50 willing and available reps from each of the top firms were surveyed. They were asked to rank their employers in 20 categories, based on a scale of 1 to 10, with 10 being the best. The brokers were drawn from a random sample of the subscriber list of the magazine.

Merrill Lynch: Tarnish on the Bull

The headlines that dogged Merrill Lynch in 2002 took their toll on how its reps rated the nation's largest brokerage firm. While respondents gave the company top marks for its actual ethics, Merrill's overall score slid from 8.70 last year to 7.65. That's a 12 percent decline and the biggest drop among the big wirehouses, all of which saw their scores fall this year. The biggest drags on Merrill's score were its ratings for image and quality of research — not surprising in a year when the company ended a probe by New York State Attorney General Eliot Spitzer into its allegedly tainted research by paying a $100 million fine and took out full-page ads apologizing to customers. “It's disturbing that something like that is going on, and I'm not so sure the people responsible for that have taken a hit,” says one rep. “A lot of mending has to be done by the foot soldiers, and the generals are washing their hands and minimizing the situation more than they should.”

Still, the industry leader, with $1.25 trillion in client assets and 14,600 retail reps, retains the respect of its troops. They endorse the company's strategic vision with a solid 7.68 approval rating. Generally, brokers had high praise for the firm's intense concentration on larger accounts and the new “Supernova” program, which sketches out a blueprint for when and how often brokers should be in touch with clients. “They're trying to make sure we have ways of contacting our clients, and make sure we've been contacting our clients more frequently,” says one broker.

The focus on wealth management has top executives sometimes sounding like all the stuff central to brokerages in the past — distribution of IPOs, selling stocks and mutual funds, earning commissions — happened at a different firm entirely. James Gorman, private client head, recently appeared at an SIA conference in Chicago and publicly mused about how his brokers stack up against bank private client groups when it comes to advice. He says brokers need to spend time on maintaining relationships rather than devoting all their energies to acquiring more assets, and has encouraged this through the development of a team approach — nearly half of the company's wealth management advisors work in teams. Brokers say that the message is slowly trickling down to their level — but say training needs to continue to ensure this happens successfully.

Still, Merrill brokers say the philosophy is the right one. “I can remember having product pushes during the first couple years I was here,” says one 16-year vet. “In the last 10 years, they've been telling you about opportunities, but not with product pushes.”

On the other hand, some reps worried that the intense focus on relatively wealthy clients could penalize them by scaring off customers who might one day have significant assets. Merrill's policy is to shunt investors with less than $100,000 to a call center. “What happens to the in-betweener, then?” says one broker. “If someone nurtures them somewhere else, are they going to come to Merrill?”

One product that rankled brokers was the firm's emphasis on using fixed income as a profit center. Overall, brokers rated the firm's fixed income pricing the second-lowest mark among Registered Rep.'s categories. “It's not a deliberate attempt to screw clients, but more a sloppiness,” says one broker. “They're focusing on the institutional side, and retail gets lost in the shuffle.” It's a problem that other firms share, however.

The bottom line seems to be that, despite the tarnish on the Merrill bull, reps have confidence that the image problems will go away and perhaps quickly. “We're in the position to come out of all this bad press on top and stay on top,” says one broker. “We take the biggest hits because we're among the most visible. We should rebound, faster than most competitors as well.”
— David A. Gaffen

Salomon Smith Barney: A Battered Image

Financial advisors at Salomon Smith Barney don't have much to complain about — except, that is, when they talk about the effects of the firm's image problems because of its entanglements with WorldCom and investigations into its research. “We have a lot of work to do to get out from under this,” says one broker. “A lot.”

Despite that, Smith Barney brokers were less harsh in their reaction than Merrill brokers, whose company faces similar image and research problems. Smith Barney's overall rating for 2002 was 7.70, a 7.7 percent decline from last year's overall rating of 8.25.

As a result of the ongoing scandal, Smith Barney reps vented about the quality of the firm's research, many adding unprintable comments about former Smith Barney telecom analyst Jack Grubman, whose coverage of WorldCom and other telecom stocks has prompted state and federal investigations. While Smith Barney maintained its high ratings from Institutional Investor's annual research survey, these employees gave Smith Barney research a withering 5.26. On image, they gave the firm a dismal 5.94, down from last year's 8.92.

So, how did Smith Barney come out ahead of Merrill in the Registered Rep. Broker Report Card Survey? Smith Barney brokers are exceedingly enthusiastic about the firm's approach to managing retail brokers — letting brokers concentrate their business on what they want without fear of having to sell particular products, for example. The firm's highest ratings were in the first two categories: “freedom from pressure to sell certain products” (9.44) and “realistic sales quotas” (9.08). “One of the things I've always liked about this firm is that they don't stand in your door and say, ‘You have to sell this and do that,’” says one 14-year veteran of the firm.

Says another rep: “You can pick the appropriate funds, manager, and annuities. We've grown to become a one-stop house…we have access to all the right people.”

Some 80 percent of the brokers at the firm use managed money in some form or another and that figure has been increasing. Also, the firm currently enjoys a leading 35 percent of the market share in the “rep as portfolio manager” program sponsors, according to Cerulli Associates.

Account statements are balanced and heavy on information, and the firm received high marks for its technology and the myriad products offered. “The wealth of resources and the overall quality of the company is what makes this such a good place to work,” says one. “We're not just a brokerage firm anymore.”

Despite the public flogging the firm received, Smith Barney brokers say the firm's ethics are high. Brokers who were recontacted responded positively to the November moves to separate banking and investment research functions (our survey was conducted before these moves).

The company announced that it is creating a separate unit under the Smith Barney name that would house the research and private client groups, which includes the firm's approximately 14,000 brokers. The firm also hired Sallie Krawcheck, former head of independent research firm Sanford C. Bernstein, to run the group. “I'll say this: It's a good thing. But whether it works or not is a completely different story,” says a Smith Barney rep.
— David A. Gaffen

Morgan Stanley: The Teflon Wirehouse?

The majority of the Morgan Stanley brokers who participated in this year's survey raved about the firm's ethics, image and overall leadership.

“The way [CEO] Phil Purcell has guided this company since 9/11 is simply astounding,” says a rep. “In a way, he did for Morgan Stanley what Rudy Giuliani did for New York, though on a much smaller scale, obviously. But he held this firm together and has kept us on the right track, kept us focused. We basically haven't missed a beat.”

The firm's overall score, 7.96, is the highest among the wirehouses and down slightly from last year's 8.21. The warm feelings are mingled with feelings of relief. While Merrill Lynch and Salomon Smith Barney have seen their images muddied by investigations into their research conflicts and relations with Enron, Tyco and WorldCom — the three horsemen of corporate malfeasance — Morgan Stanley has remained surprisingly unscathed. Like Merrill and Smith Barney, Morgan Stanley is also under investigation by the New York State Attorney General's office, which wants to know if its research was tainted by investment banking relationships.

Morgan Stanley brokers are aware of how lucky they are. “I can't get over it and I can't explain why,” says a rep. “I have friends at Merrill and Smith Barney and they've been bombarded with calls from clients over the last year. Not one single client of mine has mentioned the investigations. Some have actually said, ‘Hey, good thing you guys aren't in the trouble Merrill is in.’”

According to another rep, the national media focus “seems to have concentrated more on Merrill and Smith Barney than us; maybe it's because they were tied into the companies that crashed the hardest — Enron and WorldCom. Whatever it was, our image hasn't taken a hit at all.” The firm's image actually received a higher score than last year — 8.90, compared with 8.60.

As of the third quarter, the firm had $520 billion in client assets and about 13,500 global advisors — which means it has nearly the same number of reps as Merrill but less than half the client assets. The firm recently announced plans to lay off 750 of its lower-producing brokers, and the firm has been criticized by reps for focusing too much on proprietary products.

That is changing, however. A recent payout change that rewards fee-based business and penalizes transactional brokers has pushed brokers toward more annuitized business. Still, Morgan Stanley has generally been regarded as slow to make the move and far behind Smith Barney and Merrill. “The new payout structure will convince people that it's better for them, financially, to go fee-based,” says a rep. “It won't pay to be a stockbroker in this company anymore if you're not fee-based. I think that's the best way to go.”

Many of Morgan's producers criticized what they say is a lack of support for brokers, as manifested in the layoffs, the lack of training, and questionable hiring and recruiting practices. But many praised the firm's research, products and no-pressure atmosphere. “There isn't a better place on the street,” says a rep. “When you put it all together, from A to Z, I think we're the firm that stands taller than anyone else.”
— Rick Weinberg

UBS PaineWebber: Image Isn't Everything

While many firms are busy licking the wounds caused by a year filled with fines and investigations, UBS PaineWebber has been noticeably unblemished by scandal. It almost doesn't seem fair. Despite this, PaineWebber brokers gave the firm an overall average of 7.24, down from 7.86 last year and the second-lowest overall average among the eight firms covered.

Generally, brokers have been pleased with the firm's management and direction since UBS Warburg and PaineWebber merged two years ago. “The best thing that happened to PaineWebber was UBS,” says one rep, saying it greatly expanded PaineWebber's capabilities and reach.

The one area to elicit strong reactions from brokers was payout, garnering the lowest average of any category at 5.56; the average for all firms was 7.46. The charge imposed on writing tickets — a practice not unique to PaineWebber — is the biggest bone of contention. “Brokers feel it's just a charge on us. I don't think it breeds loyalty,” says a broker who called the practice of charging $12 to initiate any trade “ridiculous.” Two brokers who had come from smaller regional firms agreed that payout was lower at PaineWebber. “If you're going to lower payout, then up some other things. It leaves a sour taste in your mouth.”

Brokers, however, appreciate PaineWebber's clear strategic focus. Everybody gets the message that they are moving toward more high-net-worth business. Even those who didn't agree with PaineWebber's focus on high-net-worth clients admitted that the firm's position was clear, which they felt was better than having no direction at all. “If you want to just be a stock jockey, brokers will have to go to a small regional place or something like that,” says one rep. The firm, in the last year, has introduced advanced workstations to help push brokers toward operating in a more advisory role, by allowing them to keep in mind all types of client accounts, even those held outside of PaineWebber.

PaineWebber brokers are thankful that in a year of scandals that have tarnished Wall Street, their firm has managed to duck most of the bad press. “You look in the paper every day and we're never in there. I worked at Merrill for 15 years, and I'm real happy,” says one veteran rep. “We've been able to avoid many of the landmines other firms hit this year,” says another rep. Not surprisingly, the firm garnered high marks on ethics and its image with the public, coming in at 8.50 and 8.06, respectively.

Other brokers felt hindered by an overly stringent compliance department. Among the more creative monikers for compliance were “Dr. No” and the “client anti-retention firm.” One broker says he was even prohibited from using exclamation points in seminar materials. “It's sometimes carried to an illogical extreme,” he says. “What they approve is not salable. If I try to be creative they tell me to go back to the approved stuff,” says another.

While reps complain about payouts and downgraded the firm on its recruitment efforts, they are positive about their work environment. They gave PaineWebber high marks (8.86) on lack of pressure to sell specific products and high marks on quota policies. “I have worked over 25 years with a number of firms,” says one rep. “We're a first-class operation.”
— Ross Tucker

Edward Jones: The Chart Topper

Once again, Edward Jones' brokers give the firm high marks virtually across the board. Brokers praised the firm's ethics, strategic focus, old-school philosophy, and the amount of autonomy the firm gives them. In a year when most firms saw scores fall, Edward Jones inched up a bit in Registered Rep.'s Broker Report Card Survey and once again took top honors with an average score of 9.18.

What brokers like best about the company is that they know with near certainty what the company wants to do and where it is headed. “We created a platform and we've stuck with it,” says one rep. “At times we might question it, but at the end of the day I am thankful that our managing partners are stuck in their ways.”

The drill, as one broker sums it up, is “bringing Wall Street to Main Street.” As a result, Jones — with $241 billion in client assets worldwide as of October 2002 — has the largest network of branch offices in the nation. There are 8,700 Edward Jones offices, often one-broker set-ups tucked into a strip mall or small-town office building. “We work with the individual investor, and we do it by being in small communities, going door-to-door and face-to-face,” says a Jones rep.

And Jones is continuing to build its network — raising some concerns among existing brokers. The firm has hired about 1,000 brokers in the last two years, for an increase of about 15 percent. “Edward Jones has gone Putnam,” says one broker. “We keep hiring new brokers just to please [Managing Partner] John Bachmann's goal of 10,000 offices — we don't care where they go.”

Another broker says that the strategy is resulting in overlaps in some markets. “We're hiring brokers on top of brokers…I can throw a rock out of my window and hit three other Jones' offices,” says one rep. Consequently, some brokers worry about the extensiveness of training. “I could have used more training before I was set loose to hire people because I wasn't really sure what it was I needed them to do,” says one rep, a former teacher. The company tells new recruits to “‘run your business like a business,’ but they don't always have that background,” says another rep.

Still, the lure of Edward Jones is the freedom brokers have to create and run their business on their own terms. “There are no branch managers so the autonomy and flexibility to decide what I do is fantastic,” says one rep. The firm received a whopping 9.90 in the category for “freedom from pressure to sell certain products” and high marks for the lack of sales quotas and the overall sales support provided by the firm.

“Jones has the best platform out there for someone looking to build their own business because they're in business sort of for themselves but not necessarily by-themselves,” says another broker.

Brokers continually praised the overall ethics of the firm and management's decision making in these turbulent times. For ethics, the firm received a 9.80 grade. “The leadership from the top down continues to emphasize that brokers keep the clients' best interests at heart,” says a broker. The extent to which ethics is stressed at Jones prompted one rep to say, “They're so darn ethical it's sickening.”

One rep sums up the firm this way: “They care about me, they want to see me do better, they care about improvement.”
— Alex McGrath

Wachovia: Banking on Bigness

The transition from First Union Securities to Wachovia Securities was relatively seamless, brokers say. But they expressed concern that the name change — the third in four years — will hurt, or at least blur the firm's image.

“Three name changes since 1999 is just way too confusing for the public,” says one broker. “We didn't have a lot of name recognition anyway with First Union and Everen, and every time our name changes, what attention we were receiving disappeared. We had to start all over again.”

Overall, however, the firm's standing has improved since last year — one of two firms that did so in the Registered Rep. Broker Report Card Survey in 2002. Wachovia scored an average of 7.83, up from 7.69 in 2001. The ongoing challenge, according to many reps, is to retain a regional feel with a firm that has set its sights on becoming one of the largest brokerage houses in the country. The firm has $274 billion in client assets and around 8,000 retail reps, which roughly estimates to about $34 million under management per broker.

To some, the firm looks to be trying to maintain as much of a regional feel by giving its brokers more autonomy and encouraging brokers to work within Wachovia as an independent or quasi-independent affiliate. The bulk of the firm's offices operate as “private client” offices, once the Wheat First and Everen companies.

The firm is the largest brokerage with such a multitiered structure. In addition to the private client group, the firm has approximately 3,700 reps in bank branches and other offices, as well as about 400 financial advisors that operate within the independent brokerage group. Wachovia and Raymond James are the largest brokerage firms in the country that support an independent channel.

“I used to be in a regional firm. This is the closest to being in a regional firm in a big firm,” says one rep. “I can't say it's a ‘broker's firm,’ but they try to make it more a broker's firm than a lot of firms. Clients are well-protected, and there's a lot of independent autonomy in pursuing business.”

These days, reps generally say that the technological issues, such as the quote system, and the overall support from the firm are generally strong, and in that respect, the firm has worked out some of the issues that were raised in earlier mergers. For example, the operations received an overall score of 7.84, a significant increase from 2001's average of 5.80, and the sales support score increased to 7.82 from 7.58 a year prior.

“The firm expanded too quickly and now we're a bit understaffed,” says one rep. But “the good thing is our technology is good, we have brokers who are good people and we have a lot of freedom. Our technology is head and shoulders above other brokerage firms.”

“The hardest transition we had to make was from Everen to First Union,” says another rep. “With this last merger, what they did was meld Wachovia into First Union, not the other way around, so even though we took the Wachovia name it's the First Union platform.”

Still, concerns about all those mergers remain, brokers say. And the recent flirtation with Prudential Securities did not help brokers overcome their fears. The companies last said talks have broken off. But if history is a guide, Wachovia reps will be watching their screens for late-breaking news.
— Rick Weinberg

A.G. Edwards: Freedom and Access

It's still a love affair between A.G. Edwards and its reps. Maybe a little cooler than last year, but still a much warmer relationship than other firms enjoy. Reps give their firm high marks for independence, overall ethics and the client-first culture.

“There's never been a month that goes by that I don't get somebody who wants to work for us,” says one Edwards rep. “Edwards' philosophy is you always put the customer first, broker second, and shareholder third. That's been the reason for their success.”

One of the biggest lures of Edwards, according to many respondents, is the low-pressure atmosphere and independence given to brokers to build their business the way they want. “We find the best product or vendor that would best serve the client,” says a broker.

There has been a slight decline in overall score to 8.21 from last year's 8.79, which may be due, in part, to the perception among reps that the company has lost a bit of focus since the retirement of CEO and President Ben Edwards III last year. “Since Ben Edwards left, we've lost our focus of ‘everyone's on the same team,’” says one rep. “There's a sense that management is no longer on the broker's side.”

For example, some have expressed concerns with Edwards' implementation of sales quotas earlier this year — brokers must maintain trailing 12-month production of $162,500, not high when compared to other big firms, but some believe difficult in this environment. The firm currently has about $235 billion in client assets and about 7,300 brokers. “Now, you have to make certain levels. It's a reasonable amount, it just shouldn't have been implemented at the bottom of the bear market,” says one rep.

“With these quotas, some might feel pressure to get there, it might influence their advice,” says another broker. “We've always gotten credit for giving unbiased advice. When you put quotas on people, that advice could be affected.”

Takeover talk, which had brokers in a huff last year, has dwindled a bit, however.

Reps were generally effusive about the relationship between management and the brokers, focusing on the accessibility they have. “Here we can pick up the phone and talk directly to the analysts, and they have a really good sense of what the brokers are feeling,” says an Edwards broker.

“I have full access to every employee, including the CEO, and he'll talk to me. I can call the floor in New York, the traders in St. Louis,” says another rep.

But the small size that makes Edwards more collegial than the New York-based giants also has its drawbacks. One consistent complaint from reps was that Edwards doesn't have the name recognition that they would like it to have. Reps feel those who know Edwards have a good perception of the firm — but there aren't enough consumers who do know the brand. “The only thing we don't do well at Edwards is market ourselves,” says one rep. “We don't spend enough money on advertising, but at the same time, we don't piss it all away on golf tournaments.”

Nevertheless, the positives seem to outweigh the negatives at Edwards. Reps are clearly pleased with the ethical image Edwards has maintained during the conflict-of-interest scandals on Wall Street. “With all the discussion of lawsuits, Edwards' name has seldom, if ever, appeared,” says one rep. And they seem like a loyal bunch. “Let's just say this: I drive an hour every day to get here when I could have a job two minutes from my house.”
— Alex McGrath, with reporting by Betsy Riley

Prudential: Fissures in the Rock

It's been a long year for Prudential Securities. Last year at this time, Pru brokers told Registered Rep. that their biggest concern was that management was too distracted by the parent company's initial public offering. This year, they're more concerned about keeping their jobs. Since the beginning of 2001, the broker headcount has fallen from 6,600 to closer to approximately 4,500, as the company closed some offices, jettisoned lower-ranked producers and saw many brokers move on.

The turmoil took its toll on the firm's ratings in the Registered Rep. Broker Report Card Survey — dropping to 6.86 from 7.63 in 2001. Brokers surveyed expressed concerns about the personnel losses and the firm's ability to retain quality brokers. “The turnover is way too high,” says one rep. “You can't lose good people. You find a way to make them better,” says another.

On the other hand, brokers generally hold the company in high regard and praise its products and its approach to the brokerage business. The firm's hands-off style continues to be a strong selling point for brokers, and broker productivity has risen this year. “The freedom here is great,” says one rep. “What I like about this firm is that they leave me alone and let me do my business,” says another. “They let me run my own business and they're helpful in helping me reach higher levels,” says a third.

The freedom to develop their own business with firm support is something Pru brokers feel is unique. Two sample comments: “The entrepreneurial factor is what I like best.” “An entrepreneur probably couldn't work at a better place.”

Not surprisingly, brokers say they felt little pressure to sell certain products. Respondents gave that category an 8, one of the highest average scores for the firm among the 20 areas surveyed. The firm recently introduced a “fundamental choice” program, which puts together model portfolios for brokers to use as guidelines for their clients.

“There's no pressure,” says one rep. “They let me do whatever I want.”

Pru brokers also gave the firm top marks for its quote and information system and the quality of products offered, garnering an 8.08 and 8.06, respectively. Sales quotas were also reasonable, getting a 7.42.

For brokers, the weakest link for Pru is the firm's strategic focus — or perceived lack thereof. Pru brokers gave the firm's focus an anemic 5.92 average, the lowest of any firms. They cite the firm's moves to expand at the end of the bull market, recruiting high-priced brokers and then slimming down after the IPO.

And the question of whether the firm will be sold continues to loom large among Pru brokers. The firm was recently flirting with some sort of joint venture or possible spin-off with Wachovia Securities.

“Last year the firm was completely focused on going public. This year it was focused on cutting the sales force. Now the focus is on merging,” says one broker. Another criticized the firm's decision to abandon smaller accounts. “That's a policy that will eventually undermine the firm's success,” he predicts.

Still, most Prudential brokers have faith in the strength and history behind the Pru name, and that it will, when it reduces the headcount to the level it feels appropriate, push forward. As one rep put it: “This firm seems to know what it takes to be successful and to be a leader.”
— Ross Tucker