Many former Prudential advisors have reached a tipping point in their relationship with their new firm, Wachovia Securities. They are dissatisfied with Wachovia's approach to technology and worry about forthcoming changes in the compensation grid. Depending on how the grid changes resolve continuing differences between the Pru and Wachovia payout plans, old Pru reps may be ready to walk, say recruiters.
What are the Pru vets looking for? In a word: more. When the companies announced their merger plan in 2003, Wachovia pledged not to mess around with the grid until December 2004, when former Prudential advisors, who have a lower payout than Wachovia advisors, would be expected to get a bump in pay. Wachovia's grid was revised at the beginning of 2003. Grid payouts for the two firms differ, with Pru advisors, in certain cases, getting 10 percent to 20 percent less than peers at Wachovia. If that gap isn't closed, Pru reps are likely to consider their options. (Also affecting the decision: Prudential's deferred-compensation plan, MasterShare, vests in April.)
“A lot of people are waiting to see what they're going to get paid — that's the big issue for Prudential,” says Terry Rutledge, a recruiter with Rick Peterson & Assoc. in Houston.
Wachovia's technology problems are also a factor,. But Rutledge thinks that's not a deal-breaker: If the grid increase is right, advisors “can live with” some technology glitches, he says.
How important the tech issue is depends on whom you ask. Many former Prudential advisors are still clearly fired up about Wachovia's technology issues. The worst gaffe, a mainframe server crash in mid-September that kept reps from entering orders — has been addressed. But other issues remain, which the reps say, are hurting their performance. The reps say they started to have technology issues when Wachovia decided to convert the Pru troops to the Wachovia Smart Station technology platform rather leaving them on Boss 3000, a Pru system that the reps view as vastly superior. One source familiar with the firm's technology calls Smart Station “about five generations behind what the Prudential reps had.”
Converting to Smart Station has increased the workload of some reps. One told Registered Rep. that the sales-support functions of the system are seriously lacking. Another said he's back to working on Saturdays to catch up — something he hasn't done in years.
Some advisors say the firm's technology woes are hurting their ability to produce effectively. “I'm a first-quintile broker, and last month was my worst production month in three years,” says one West Coast-based Wachovia rep. “I was down 65 percent. That has nothing to do with me or the markets.” “A lot of branches didn't make their draws in September,” says another rep, adding management's calls for patience are getting old fast. “They better stop saying that, and let us tell them what we think — that's how they could start rebuilding credibility.”
How damaging are the tech issues? It's hard to pinpoint. Wachovia Securities, like many firms, reported an earnings decline in the third quarter. But Wachovia's drop was steeper than most. Client assets fell to $615.9 million from $618.8 million — a second straight quarterly decline in that category — and earnings for the retail-brokerage unit fell 12 percent from the previous quarter and 17 percent on a year-over-year basis, due to “weak retail-brokerage trading activity.” (By contrast, revenue declines at Merrill and Morgan were 7 percent and 4 percent, respectively, on a quarter-over-quarter basis.)
So far, attrition has not been a big issue. After the initial exodus of Prudential reps when the merger was first announced, Wachovia's retention rate has been strong, according to recruiters. Wachovia absorbed 3,700 Series 7 financial advisors, nearly doubling its ranks of registered reps. And Pru advisors said they were impressed by management's accessibility and willingness to listen. CEO Danny Ludeman and others met with groups of advisors from around the country, even inviting them to his home for dinner and listening to their ideas.
At the end of last quarter, the number of advisors at Wachovia stood at 7,964, a small dip from 8,009. And, according to Wachovia's earnings release, the firm hasn't lost major talent: “Regretted brokerage attrition” — defections of people the firm wanted to retain — “is better than expected.”
Whether that holds true in 2005, depends a great deal on the details of the new grid. “They haven't said anything about the compensation package — they're keeping it very hush-hush,” says one longtime Wachovia rep, adding that he's been told the revision will come “in the first quarter, if we're lucky.”
However, advisors say that at this point, they are growing weary of promises and pep talks. “They gave us canisters filled with Hershey candy as a token of appreciation,” says the Wachovia rep. “I tell you what: Keep your candy and give us more money.”
Nobody expects to see an exodus before the grid is published — and those comp packages vest next spring. “It behooves [brokers] to see it through,” says Carri Degenhardt-Burke of Degenhardt Consulting in Jersey City, N.J. But if technology and pay issues persist, advisors are going to start wondering what they're sticking around for.
