Merrill Lynch brokers aren't the only ones suffering from commission-cut anxiety. Over at Prudential Securities, President and CEO Hardwick Simmons says he has taken steps--including providing brokers with "transitional compensation"--to help ease them into the new compensation dynamic.
"We have to get the financial adviser off this anchor that says, 'If I apply the new formula to my current business, I'm going to lose,'" Simmons told about 200 attendees at the SIA's Retail Management Conference in Chicago, Sept. 16, 1999. "Instead, we have to get them thinking about the fact that this business is dynamic. If we get into this kind of relationship, the assets will increase significantly, enlarging revenue flow."
Simmons said the average client who converted to the firm's fee-based Prudential Advisor program increased assets by 25 percent during a six-month trial period. And the number of transactions jumped by two-thirds.
"We ended up recapturing some of those play dollars that had left for less-expensive realms," Simmons said. "But until that actually kicks in, we're providing brokers with some transitional compensation."
From June through September, the first four months after the account was offered, Prudential reps received 10 percent over grid on Advisor production for new clients and 5 percent over grid for current clients who converted more than 20 percent of their assets, according to the firm. But several Prudential brokers contacted after Simmons' speech were unfamiliar with the incentive.
Another conference speaker, Morgan Stanley Dean Witter securities industry analyst Henry McVey, provided perspective on why brokers are concerned about their paychecks. The average retail commission will drop by more than half over the next four years, he predicted, from 66.04 dollars in 1999 to 28.07 dollars by 2003.
Simmons also addressed the issue of after-hours trading, saying that the firm could eventually enhance its PruTrade online order-entry service to provide clients with after-hours executions. "Each individual FA has a decision to make. Does he or she want to be there during extended hours, or do they want to extend capabilities directly to the client?" Simmons said. "I see it going straight through to the client, although I always see it being part of an advised relationship."
Simmons also mentioned that the firm's broker workstations are using a form of "artificial intelligence" to help producers give clients consistently good investment advice. "We can no longer allow individuals to suffer from the vagaries of individual FA performances," he said.
Recommendations from the workstations are based on the firm's asset allocation strategy, inventory, its select list and the individual's investment experiences and preferences, he said. "This way, we begin to create some consistency of output, therefore leading to better performance for our clients."
