Spare Us the Cutter

If you don't look too closely, you might think the securities industry is in a golden age. After all, the thing that matters most — profits — is up. Way up.

The Securities Industry Association estimates that pre-tax profits for the broker/dealer industry in 2003 will hit almost $22.45 billion, besting 2000's $21 billion as the most profitable year ever and tripling last year's $6.9 billion.

The thing that takes a shine off these numbers (at least as far as reps are concerned) is that they're not the result of revenue improvements. Rather, they're coming from a ruthless brand of cost cutting that dramatically affects the day-to-day lives of many reps.

In 2003, revenues in the broker/dealer industry rose only slightly, to $153.7 billion from $151.2 billion in 2002, according to the SIA. (By way of comparison, the industry had revenue of $245 billion in 2000.)

However, despite that slight uptick, firms have been able to improve profits — mainly by slashing the “overhead” costs. Merrill Lynch, for example, boasted a 50 percent increase in earnings from third quarter 2002 to third quarter 2003. Its revenues grew by 16 percent in the quarter, but it significantly cut expenses (in part by laying off 400 employees.) Morgan Stanley's third-quarter earnings rose 108 percent from 2002 on a revenue increase of just 13 percent.

Despite the profit improvements, it's unlikely that firms will reverse the cost-cutting trend any time soon. Morgan Stanley chair John Schaefer recently told a conference in Boston that he still doesn't foresee the day when spending in the brokerage area will increase significantly.

Reality Check

Cost cutting of some sort was of course inevitable, given the excesses of the late 1990s and the realities of the subsequent bear market. Add to this the fact that much of Wall Street has had to pay substantial fines in the wake of Eliot Spitzer's investigations, and that even more money has been doled out in the morass of private lawsuits. In addition, many firms are tucking money away for future fines. Smith Barney, for instance, has allocated $100 million for impending arbitrations (and ones that aren't even pending), and Merrill Lynch has set aside $50 million.

It all adds up to a potent argument for fiscal conservatism.

“A bunch of events have caused firms to drastically rethink their cost structures,” says Chip Roame, managing principal at Tiburon Strategic Advisors in Tiburon, Calif. “They had geared up their cost infrastructure in a big way in the late ‘90s, so they've had a lot to chop. The question is how far they're going to go.”

It's that last part — how far they're going to go — that concerns the average rep, and they used this year's Broker Report Card survey to sound off on a variety of issues related to cost cutting.

Their main issue, of course, is that the “overhead” that firms are cutting affects their day-to-day business in tangible ways. For instance, many branch offices have seen the number of sales assistants cut in half. This translates into more paperwork for brokers, which in turn leaves less time for selling — and we all know what that means.

Across the board, the lowest scores in this year's survey were those related to home office support and compensation. Payout scores? Down from 7.46 (out of 10) to 6.89, the second-lowest score in the survey. Benefits? Down 8.15 to 7.92. Quantity of sales assistants? 6.69, the lowest score in the survey.

As firms cut back on expenses, reps are struggling to build their practices under a revised set of business rules that include much lower overhead costs. It hasn't been easy, and there are some minor signs that things may be getting better.

Reps have been “feeling it for a while, but until a slight uptick recently, where some of the cost-cutting has slowed down thanks to growth on both sides of the ledger, the last year has been particularly difficult,” says Frank Fernandez, chief economist for the Securities Industry Association. Amidst all the concern about support, it's important to keep an eye on the most important thing, he says: “The industry has retained profitability.”

As welcome as a slowdown in the cutting might be, what reps really desire is a slight increase in spending. The idea is not to return to an era of excess, but to plow some of the profits back into support services so that advisors will be free of the operational work that is keeping them from business-generating endeavors.

Who's Answering the Phones?

Here's an example of the negative effect of cost cutting from a Merrill rep. In responding to the Broker Report Card survey, this rep ranked his firm's quantity of sales assistants particularly low. When pressed about why that was, he offered an explanation of why his sales assistants are never around when he needs them.

At his individual branch, the rep says, Merrill laid off the firm's main switchboard operator and one of the sales assistants. Rather than fill their positions as the firm's financial fortunes have improved, Merrill staffs the switchboard with a rotating series of sales assistants. The result: Sales assistants, already backing each other up on their regular duties because of a smaller staff, are now out of the office for hours a day, time in which they're desperately needed by their reps.

“Back office support needs to be increased,” the rep says. “Our time is too overwhelmed.”

To be sure, such problems are not confined to Merrill.

At the other end of the complaint spectrum are the payout issues. Several Wachovia reps say their payouts have suffered and annual account fees have increased. UBS reps lamented the introduction of extra fees for those who do not meet a year-end minimum $100 commission on each account, causing many to endure substantial pay cuts on money they believe they've earned. A Morgan Stanley rep complained that constant turnover has led to not only a decrease in morale, but a real capital loss. “You feel like you're running to stand still sometimes,” he says.

In many ways, the Morgan rep's complaint gets to the heart of the matter: In a market climate that's already taxing, one that requires the use every available tool just to avoid falling behind, reps are forced to make due with even less support. Brokers are willing to concede that when the firm's hurting, everyone needs to pitch in, and a spartan existence makes sense. But when firms are recording record profits, many say it's time to ease up — and few have seen any signs in that direction yet.

“It's tough not to get frustrated,” says one Merrill advisor. “It's like every time they have to make a cut, they immediately look to us. And we're the ones who have to figure out how to keep going.”

An Investment in a Broker

Of course, it's not just a matter of the mean, nasty corporate executives trying to bleed the poor, innocent broker either. When a firm hires a rep, they're making an investment of their own. They put in a certain amount per rep to cover costs like sales assistants, training and benefits — estimated around $250,000 — and when the rep is producing at a high level, like many were three years ago, their investment pays off, and more capital can be invested. But when firms are receiving lower production from an advisor — and whose productivity isn't down from three years ago? — they're less likely to invest more in an individual broker.

In other words, you make less for us, we give less to you.

That's reasonable to a point, but some reps say that vital parts of their practices are going neglected, stifling any expansion from the get-go.

“The problem with that kind of thinking is that by reducing your investment in a broker, you're stopping him from growing,” says Roame. “Ideally, firms will learn the middle ground between per-advisor profitability and per-firm profitability. They go together.”

But until that ideal equilibrium is met, reps are going to have to just try and make do. It's not like they can give themselves much more support. Or, as one A.G. Edwards rep puts it, “It's a basic job. I try to do right by my clients. You can take away all my support staff and lower my payout and leave me with nothing, but I'm still going to use my skills to do what's best for my client. If I do that, it'll all work out.”

But he adds: “That said, I need all the help I can get.”

Registered Rep.'s 2004 Broker Report Cards

Brokers rate their firms.

In a couple of notable ways, reps' opinions of their firms changed for the better in 2003.

First, many see a renewed emphasis on ethical behavior — a necessary change to be sure, given the scandals of the past 18 months. Second, the reps see improvements in the firms' research and in their product offerings. But lest we be overcome with euphoria, the reps have plenty of negative opinions as well. The issues of support and compensation are top-of-mind, and many believe firms have taken a step backwards on these important issues. Firms — even some of the most profitable ones — continue to cut costs and brokers say they are feeling the pinch in areas like payout and quantity of sales assistants.

Overall, the seven firms polled in Registered Rep's 13th Annual Brokerage Report Card Survey averaged to 7.79, just a slight decline from the cumulative 7.83 score last year. Once again, Edward Jones was the highest-scoring firm, with an average of 8.99 (though that's lower than the previous year's score of 9.16.) It received the highest score in 15 of 19 categories.

Only two firms improved from the previous year: Smith Barney, which rose just a touch, to 7.71 from 7.70, and A.G. Edwards, which rose to 8.31 from 8.21 in 2002.

The highest average score for a single category was “freedom from pressure to sell products,” which rated 9.11, up from 9.05 last year. They were also high on the “quality of products offered” (8.51) and the “ethics” of their various firms (8.75).

The worst category overall was the same as in 2003 — “quantity of sales assistants,” which received an average of 6.69. Meanwhile, reps' opinions of payout policies dropped sharply, to 6.89 from 7.46. This reflects not so much major grid changes at the firms as niggling account fees, transfer fees and other minor alterations: compensation “haircuts,” in rep parlance.

Merrill Lynch: Belt-Tightening Works

Perhaps no firm has cut costs more successfully than Merrill Lynch has. Consider that Merrill reported net earnings of nearly $1.04 billion in the third quarter, a 50 percent increase over the second quarter and the second-best quarterly earnings in the company's history. However, that success comes at a price, and Merrill's reps say they're the ones paying it.

After watching its Broker Report Card score plummet from 8.70 mark in 2001 to 7.65 in 2003, Merrill's overall rating dropped again this year, to 7.54.

“The cost cutting has definitely affected our effectiveness,” says one rep. “The sales assistants have to take turns working the switchboard, because they terminated the switchboard operator.”

The firm's scores — especially in that category — show their frustration. The worst score Merrill received was on “quantity of sales assistants,” 5.54, down more than a full point from 2002. Almost as bad was the “fixed-income pricing,” at 6.28, far below industry average.

Overall, however, Merrill still fared better on the report cards than many of its rivals, including UBS and Wachovia. Merrill's strengths, according to reps, lie in the relative freedom to sell products, which scored 8.76, and the “quality of the products offered,” which scored 8.36.

One of the more common complaints concerned the firm's much-ballyhooed Beyond Banking initiative. Some feel it's an example of the firm overreaching. “We're certainly not all things to all people, but that's what we're trying to do,” says one rep. “That's not what got us here.”

On the other hand, reps spoke favorably about the “quote and information system” — which scored 7.88, up from 7.38 last year — with frequent mentions of the new workstations, which are in the process of being rolled out to branches. Merrill has pegged its spending on that initiative at about $1 billion over the next few years.

The management shakeup that Merrill went through this year also left a few reps concerned, though rankings for “strategic focus” stayed mostly constant from last year, at 7.66.

But reps were more worried about their own branches, and their concern shows: “Much of the local management has sucked,” says one rep. “There have obviously been lots of changes around here, but they really need to focus more on the grunts.”

The public blows that Merrill absorbed last year, including a $100 million fine from New York State Attorney General Eliot Spitzer and the attendant embarrassment from the research scandal, seem to have let up a bit — at least in the eyes of its employees. The firm's “public image” ranking is up by nearly a full point, to 7.40.

With the ethics scores remaining high at 8.44, many reps feel it's a matter of time until things are back to normal. Also improving considerably is the “quality of research,” up to 7.90, from 7.36 last year. And several reps commended the firm on its managed money support systems, with one saying, “It's the cheapest way they can run investments and also the most beneficial.”

The bottom line for Merrill is this: Its brokers might not always be ecstatic about everything the firm does, but even in the face of the scandals, the firm remains one of the most respected names in the business.

“The firm has a lot of good going for it,” says one. “Those who stay with Merrill, the rewards are going to be great for clients and FAs.”
— Will Leitch

Smith Barney: A Steady Recovery

Financial advisors at Smith Barney are a relatively contented bunch, despite a tough year and lingering fears about the future of the industry.

The hiring of Sallie Krawcheck as CEO and the firm's focus on wealth management seems to have most reps in good spirits about the company's direction.

Overall, Smith Barney reps gave the firm a score of 7.71 this year, nearly identical to last year's 7.70, although significant changes have occurred in the mood of many brokers. They tended to see the research and image problems receding, but the firm got lower marks this year for its “payout” — 6.42.

FAs still cheer the firm's entrepreneurial work environment. The firm received its highest mark for “freedom from pressure to sell certain products,” with a 9.22 score.

“Citi has great products, but I sell everyone's, and I don't have a quota,” says one 10-year vet of the firm.

Coupled with “realistic sales quotas,” which received an 8.44 (still strong, but down from last year's 9.08 figure), the firm's brokers seem to enjoy a relatively stress-free atmosphere in which to build a business. True, Krawcheck's stated desire to have Smith Barney reps average a million dollars in production turned up the heat on lower-end producers, but reps say the goal generally is being pushed in a reasonable way. “It's certainly ambitious, given the climate, but that's why she's here, right?” said one rep. Other bright spots were the “quality of the products offered,” (8.42), and technological resources, namely the “quote and information system,” (8.42). Although many noted that this technology broke down periodically, most were pleased with its speed, ease of use and consistent efforts to improve it.

Although brokers say the Grubman affair still haunts them, reps' view of the firm's integrity received a 10 percent boost from last year to an 8.32. Further, it received a score of 6.84 for its “public image,” a significant improvement over last year's 5.94 figure. “The character of the firm is bigger than Jack Grubman,” says one broker.

However, otherwise pleasant brokers turned ornery when discussing the firm's research. True, the research department's reputation appears to be on the mend, thanks in part to a new, simplified stock ratings system. But the effects of the research overhaul are taking hold too slowly for some. Brokers rated the firm's research a 6.40, up from 5.26 last year.

“We have a new rating system, but I'm still getting yesterday's news today — 20/20 hindsight,” says one rep.

But the worst complaint from reps involved “sales support.” With revenues year-to-date down 5 percent, and net client asset flows off 29 percent, the firm, like many of its peers, continues to cut costs aggressively, and that means fewer sales assistants and related support services for advisors. “Quantity of sales assistants” received the lowest mark at the firm, at 6.14.

Reps also had some negative things to say about the firm's payout. “There have been some deceptive cuts in our money,” said one self-described stocks-and-bonds broker. “They've reduced the kinds of assets you can get paid on, and excluded others,” and this translates into a two or three percent cut in commissions for a $300,000 producer.

On the plus side for the firm, many of its 12,250 brokers are adopting a more comprehensive approach to wealth management by using teams and specialists. The firm already enjoys a leading position in the industry among reps acting as portfolio managers, according to Cerulli. The unified managed account program, which allows reps to aggregate many separate investments into one portfolio should further this effort.

Smith Barney's brokers may be yearning for the days of stronger payouts, and those may not be soon in coming. But at the very least, reps seem confident of the firm's ability to move past the issues that have plagued it in the last two years.
— John Churchill

Morgan Stanley: Losing Ground

Last year, Morgan Stanley enjoyed the highest ranking among all the wirehouses in Rep.'s survey. It was praised for sidestepping the worst scandals of 2002, and its reps were comparing CEO Phil Purcell to former New York City mayor Rudy Giuliani.

But a lot can change in a year.

The year brought a few problems to Morgan — including controversies about the firm's reliance on proprietary product sales. As a result, the firm seems to be losing some of its luster. With 11,326 financial advisors as of the end of the third quarter, Morgan ranks fourth in terms of total reps (behind Merrill, Smith Barney and Wachovia), but had a lower average score than all three of those firms, only finishing ahead of UBS Securities.

Morgan's ability to portray itself as somehow above the Wall Street scandals has ended. Its sterling overall rating of 7.96 in 2002 plummeted to 7.38, far below the industry average of 7.79. A large part of that can be traced to ethics. Last year, Morgan was the only wirehouse with an ethics rating over 9, at 9.36, finishing behind only notoriously-clean-as-a-whistle A.G. Edwards and Edward Jones. But this year, its ethics rating collapsed to 8.02, the worst of any firm surveyed.

“I think our image is slipping a bit,” says one rep. “We were able to avoid some of the mess for a while, but we should have known it wouldn't stay that way.” The firm also fell in “public image” ratings, from 8.90 to 7.78.

And ethics weren't the only problem. Morgan actually finished below the industry average in every category but “benefits” and “quality of research.” Its worst score, other than then perpetually “low quality of sales assistants,” was for its “hiring and recruiting practices,” at 6.20, a full point below average. The firm has reduced headcount by 17 percent from the third quarter 2002 to third quarter 2003, lopping off more than 2,200 advisors. Many reps pin the blame for this directly on management's door.

“I'm actually amazed they're still hiring at all,” says one rep, commenting on the massive job cuts Morgan has made in the last year. “The problem is that it's a revolving door around here. These new kids come in and come out before you know their names.”

Another problem many reps mentioned was the firm's propensity to roll out various products and services for reps in rapid succession, making it difficult to keep up. “It's like drinking from a fire hydrant,” says one. The firm, like most of Wall Street, has made a conscious play for higher net worth investors, and some have found that somewhat disconcerting.

“It's like they're going after the Goldman Sachs market, the upscale people, all of a sudden, and just going away from the middle-market folks. That was a quick switch,” says one. However, the firm is expected to combine its two separate broker/dealer platforms — the one that served the firm's private wealth management group and the one for the rest of the sales force — and also to break down some barriers between those offices working together.

Many complained about the firm's insistence on relying on proprietary products — and its spirited defenses of them. Not surprisingly, reps punished the firm with an industry-low 7.86 rating for “freedom from pressure to sell certain products.” And the firm's “strategic focus” received a 7.26 rating, also an industry low.

But with all the grievances levied against the firm's home office, many reps said the troubles start and end with their own branches. “There are a lot of problems unique to the individual branches, and those branch managers they've hired, they're directly responsible for them,” one rep says. “I don't know what's happened, but some of them, it's like they don't care.”
— WL

UBS: Oh, the Paine of Re-Branding

A hundred years of brand identity is not easily replaced. That's the message from UBS brokers about the firm's re-branding effort now that it has completed its digestion of the former (household-name) PaineWebber.

“It doesn't matter how great we are, no one knows us,” says one UBS broker. “They know PaineWebber.”

Of course, anonymity's has its upside, in an era in which many well-known brands have been stained by scandal. UBS has hardly escaped unscathed — it has paid its share of fines over the last year. But the public doesn't associate its name with scandal the way it might with, say, Smith Barney.

Branding issues aside, UBS brokers gave the firm an average rating of 7.21, a slight decline from 7.24 the previous year. One major drag on that average was the dismal rating for the firm's payout policies. It received a score of 5.36 on “payout,” down from last year's already bad 5.56. Specifically, reps cited the fees UBS charges those who do not meet a year-end $100 minimum commission on each account. One $300,000 producer says his payout is technically 32 percent, but after commission minimums and $12 ticket charges on equity and options trades, that payout is actually lower. “With the ticket charge, if I do a $100 transaction ticket, that's a 33 percent pay cut. That stinks.”

Like other firms, UBS is cajoling its reps to transform themselves into fee-based advisors by increasing payouts by 4 percent across the grid for advisors who adopt such a model. It's also using some negative incentives: “You don't get access to IPOs unless you're fee based,” says one broker. And walk-in rich people are routed toward fee-based advisors, he says.

The firm's “hiring and recruiting practices” also took a hit in the eyes of brokers, with its score in this area dropping to 6.56 from 7.10. UBS has aggressively courted big producers in the past year, with promises of 70 percent upfront bonuses on 12-month trailing production, and 15 percent bonuses in each of the subsequent two years. But the ripple effect of this worries some existing UBS brokers. “They're definitely weeding out the bottom 20 percent of producers,” says one rep.

On the plus side, reps gave UBS a 9.10 score for “freedom from pressure to sell certain products,” and 8.12 for “realistic sales quotas.” Further, “overall ethics” received an 8.28.

In addition, reps say the firm's research is overly concerned with international investments. They delivered a 6.90 score for research, a slight decline from 2002's 6.94 rating. “At PaineWebber we would get five to 10 new ideas a week for U.S. companies,” says one rep. “Now 75 percent of the research is foreign. I'm in the Midwest — my clients don't care about little foreign firms.”

Reps say UBS has improved its support infrastructure markedly, the exception being “quotes and information.”

In the area of “sales support,” brokers agreed that sales assistants are too scarce (a 6.20 rating), but the quality of the assistants the firm employs is good (a 7.56 score).

UBS management was rated slightly worse than last year, but brokers express confidence in the overall direction of the firm.

But through it all, one thing remains: Brokers are still having a tough time getting used to the UBS name. Those in smaller branches were most disturbed by the change, and brokers feel that client-calling campaigns encouraged by top management aren't enough to bridge the name-recognition gap.

But it's hardly as though UBS lacks clout, and to UBS executives, that's what matters most. With 8,300 brokers who average $58.9 million in assets (a per-broker asset average that ranks only behind Merrill and Smith Barney), UBS is big time, and looking to be more so.

“Everyone has to be more productive. That's the bottom line,” says one broker. “It's sink or swim time.”
— JC

Edward Jones: Still On Top

Once they drop their pompoms and come down from atop their desks, Edward Jones reps sound a lot like other firms — worried about shrinking payouts, benefits, sub-par research and outdated technology. But the pompoms can't be ignored.

Jones brokers take top honors again this year, with fewer complaints and more praise for their firm than any other. Overall, Edward Jones scored an 8.99 in this year's survey, a decline from last year, when it averaged 9.18, but still the best average among the seven firms surveyed.

With 9,300 reps tucked mostly into one-broker offices around the country, Jones was cited for its strong ethics, unvarying approach to the business and overall support of its reps.

In fact, the firm differed considerably from other firms in the “support” category. As wirehouse reps try to squeeze more from their assistants — assistants who are often shared with other brokers — or pay out of pocket to protect them from the cost cutting blade, Jones brokers rest easy. That's because each one has a full-time assistant paid for by the firm. The home office in St. Louis also provides a 24-hour tech support line.

Jones brokers are satisfied, if not overjoyed, with the firm's “quote and information system.” It rated an 8.44, with one rep noting, “It is a little out of date, that's for sure, but alright.”

Brokers starting out at the firm enjoy the ability to run their businesses as they see fit. On top of that, they appreciate the firm's support — “sales support” received a 9.46 rating, third highest of all categories. “It's like having your own franchise and not paying the upfront costs of starting it,” said one broker. Although their office and full-time assistants are paid for, brokers did say that all of advertising and half of operational costs were on them.

Jones brokers were pleased with their payouts, which average from 35 to 40 percent. “Some of my costs chip away at that, but it's in the high thirties,” said one broker.

One broker complained that he paid for his entire health plan, protesting that other firms would probably pay at least half. It's no surprise then that “Benefits” was given the lowest score by the firm's reps (7.84).

With no proprietary products to hawk and “realistic sales quotas” (9.28), Jones brokers may not match big production quotas (thus payouts) at other firms but they have other incentives. Bonuses are awarded to branches showing at least $6,000 in profit for the quarter. But as a broker noted, that is contingent on the firm being profitable too, so many brokers are now seeing their first bonus in two years. Jones also sends its best reps on paid vacations to exotic locales twice a year. Diversification trips, as they are called, are awarded to the top 40 percent of producers maintaining balanced and diversified portfolios.

Brokers are asked only to stick to the conservative ideology of the firm. What if they don't obey? “If you're too heavily allocated in one area, you'll get an e-mail immediately from the home office telling you to rebalance,” said one broker, in awe of the firm's monitoring capabilities of its 9,000 branches.

Clients' portfolios are easily understood, according to reps, because of three types of account statements that range from basic to detailed. “My clients appreciate the simplified choice since most don't want to pick through it all,” said one broker.

Research is an area many brokers wish the firm had stronger commitment to. “Quality of research” at the firm scored an 8.24, one of Jones' lower scores. “They never recommend anything risky,” said one broker who added that the conservative policy was a mixed blessing. “Sometimes we miss out,” he said.

Befitting its more conservative approach, however, others found it better if reps protect clients from the market's excesses at times. One rep stated that Jones never had more than 20 percent of its stock in the technology sector when the bubble burst in 2000. “Amen to that.”
— JC

Wachovia: A Firm in Flux

In the wake of adding in several thousand brokers from yet another acquisition, brokers at Wachovia Securities are finding the going a bit bumpy — but not as chaotic as some expected.

Many laud the firm's ethics and commitment to a regional focus but some wonder whether the focus on getting larger will end up rendering it just another wirehouse.

Overall, brokers gave Wachovia a rating of 7.41, a sharp decline from last year's score of 7.83. The firm still receives strong marks for encouraging brokers to make decisions for themselves and to sell a variety of products. The firm's ethics ratings are stronger than most as well.

Wachovia received an 8.88 for ethics — although a dip from last year's 8.96 figure, it is still a strong showing. Reps gave the firm a 9.36 for “freedom from pressure to sell certain products,” just off last year's 9.44 figure. The firm also receives plaudits for its management, which averages out to a 7.78. Overall, the firm's “public image” dipped to 7.54 from 7.69 in 2002, but most of the complaints here center on the firm's relative obscurity in some parts of the country — something that's changing. “Most people out in California at least know how to pronounce Wachovia now,” says one broker.

That said, “The public is starting to realize we bring something fresh and new,” says one rep. “[Management] takes a bottom-up approach, and say the broker is the client.”

However, reps complain that recruiting has dried up and that payouts have suffered as the firm continues to cut costs and monkey with annual account fees. Still, brokers like the entrepreneurial, small-firm spirit that pervades the various branch offices.

Of primary concern to many brokers is whether Wachovia's addition of about 3,000 brokers in a merger with Prudential Securities will result in a less personalized approach from firm management. The firm now boasts more than 8,300 Series 7 reps and an additional 3,300-plus Series 6 reps. It has a total of $568 million in client assets.

“I was at Merrill for the first part of my career, and it's getting more like Merrill than like Everen [a smaller firm acquired in 1999],” says one rep. “To me, that's not a good thing.”

Tempering many reps' fear of the “wirehouse syndrome” is the perception that Wachovia Securities CEO Danny Ludeman will continue to nurture Wachovia's traditional corporate culture despite its new size. “If Danny can win out on his viewpoint, that's going to be a major coup,” says one rep.

Philosophical differences aside, reps' more pressing concerns relate to an apparent de-emphasis on recruiting. Brokers rated the firm's “hiring and recruiting practices” a 6.63, a sharp drop from last year's 7.66.

Meanwhile, payout-related complaints also abound. The firm's “payout” score was 6.74, down significantly from last year's 7.68 rating. Among brokers' chief concerns were increased penalties for falling short of $19,000 monthly production minimums and the rising prominence of nuisance fees to customers. “Brokerages don't bug people with $40 fees, but Wachovia does,” says one rep.

Overall, reps tend to appreciate the way the firm has avoided taint in the recent spate of securities scandals. Further, they like the financial planning and modeling tools Wachovia provides. Currently, the firm is in the midst of a technology project, called Envision, which will help brokers model client retirement goals, and it's been promoting its multi-discipline account as a way for brokers to get involved further in managed money.

True, it faces a raft of cultural and operational hurdles related to the Prudential acquisition, but over time these are proving less troublesome than many had feared they would be.

“I get recruited by other firms,” says one broker. “And after I ask questions, I realize we don't take a back seat to anybody.”
— David A. Gaffen

A.G. Edwards: A Nice-Guy Firm Steps Into the Spotlight

The line on A.G. Edwards is a familiar one: Upstanding ethics, low-pressure atmosphere and happy financial advisors — but a public-awareness rating down there with that of the backup catcher for the Tampa Bay Devil Rays.

But as upper management launches the first national advertising campaign in the firm's history and challenges the notion of A.G. Edwards as a “regional” firm, reps are optimistic that the days of toiling in professional anonymity are drawing to a close.

Overall, the St. Louis-based brokerage received a score of 8.31, up from last year's cumulative score of 8.21. Edwards gets a sterling 9.56 rating in “overall ethics,” up from last year's 9.52 mark, and its marks for “quality of products offered” (9.28) and “freedom from pressure to sell certain products” (9.74) remain among the best in the industry. J.D. Power & Associates says that investors second the high marks: Edwards ranked first among large brokerage firms in investor satisfaction.

However, investors and brokers also agreed the firm needs to work on its image — or rather on obtaining an image. The company ranked last in public awareness in the J.D. Power survey, and brokers rated the firm's public image a mediocre 7.70.

“Those who know us, love us,” is a refrain several brokers repeated, “but not enough people know us.”

The fact that the ad campaign is addressing this issue is not going unnoticed.

“They're trying to do something about their ‘quiet’ problem, and I have to say, it's about time,” one broker says.

But branding isn't A.G. Edwards' only issue. The firm's famous policy of not offering signing bonuses to new brokers, in the eyes of many reps, diminishes the firm's quality. A.G. Edwards' “hiring and recruiting practices” ranked 7.42 (down from 7.86 last year), which, after “quantity of sales assistants” (7.26), was the firm's lowest ranking in the survey. It was only in the last year that a production requirement — $162,500 — was instituted for the rep force. “They don't really look over people as well as they should when they come in,” says one rep.

Another ongoing struggle is with technology, or more specifically, with technological support for reps. But the firm fared better on that account in 2003 (8.13) than last year (7.89). Also way up was the score for products (“research,” “fixed-income pricing,” and “quality of products offered”), to 8.41 from 7.92 in 2002.

Reps said their lives are relatively free of the micromanagement and from-above pressure that characterizes wirehouses. “They leave us alone to do our jobs,” one rep says.

That respectful treatment is largely responsible for Edwards' ability to retain brokers. The firm has the lowest turnover rate of any of the largest firms, (the average rep stays eight years), and brokers quickly dispel the notion that the loyalty is some sort of coincidence.

“The attention they pay to the client is the best I've ever seen,” says one rep. “I'll confess: I've drank the company Kool-Aid here. I really do believe everything they say about clients first and a family attitude.”

But the bread-and-butter for A.G. Edwards will always be its emphasis on ethical client relations and the freedom it gives its reps.

“We never have to worry about scandals here,” says one rep, “unless it's something like, ‘Hey, who stole my chicken out of the fridge.’”
— WL

Methodology: How the Firms Were Surveyed

Rep. polled 350 brokers in September and October at seven different firms (Prudential, having been combined with Wachovia earlier this year, was eliminated). The first 50 willing-and-available reps from each of the top firms — with at least one year of production at that firm — were surveyed. They were asked to rank their employers in 20 categories, based on a scale of 1 to 10, with 10 representing the best. The brokers were drawn from a random sample of the subscriber list of this magazine.