Registered Representative Magazine
May, 2001

Compensation
By Michael Hayes

The Salaried Stockbroker

A certain type of person welcomes the idea of a steady paycheck. Banks, discounters and some broker teams offer salaried positions for those who want to escape the production grind.

How does the idea of a steady paycheck sound?

For a small but growing number of brokers who are sick and tired of production targets, the asset-gathering grind and the wild fluctuations of their performance-based income, a dependable annual salary sounds like good medicine.

"In this market, a lot of brokers are feeling the effects of a significant payout drop and would welcome the opportunity to work on salary," says David Testerman, a vice president and founder of Brokerhunter.com, a Web site that matches brokers with employers. Facing shrunken paychecks, more producers are showing interest in positions that offer at least a minimum guaranteed salary, he says.

Confirms Paul Richardson with Richardson Recruiting Services in Dallas, "With the market in the condition it is in now, my phone has been ringing off the hook with calls from brokers looking for salaries."

But the pickings are slim. Forget the wirehouses. None of the large national firms contacted by Registered Representative say they offer any formal arrangements for paying brokers a salary, beyond the paychecks rookies receive during training programs. And many reps don't like the idea, even the handful at JP Morgan H&Q who were just converted to level pay plans (see "Salary Opposition," Page 92).

If you are determined to work on a salary, the good news is there are at least three other avenues-albeit narrow ones-worth exploring:

1) Sign on as an investment consultant with a local bank branch.
2) Join a discount house like Schwab or Fidelity, or
3) Find a team of brokers looking for a "client relationship manager"-someone to drop tickets and handle client phone calls.

Some Banks Go Salary Route

Instead of paying upfront recruitment bonuses, some banks are offering brokers a guaranteed salary for a few years, plus a bonus based on the team's production or the branch's revenues, Testerman says. But those banks are few and far between.

In fact, only about 30% of the brokers working in bank branches are paid salaries, says Ken Kehrer, president of Kenneth Kehrer Associates, a research firm in Princeton, N.J.

Bank salaries are typically in the $30,000 to $40,000 range, with bonuses of about the same amount, which brings total compensation for bank brokers into the neighborhood of $75,000 to $100,000 according to recruiter Rick Peterson, president of Rick Peterson & Associates in Houston. That's about the same as a commissioned broker doing $250,000 gross, he says.

Richardson says Wells Fargo is the only bank he knows of that pays brokers a salary. A spokesperson for Wells Fargo says she could not confirm or deny that information because key executives were out of the country.

First Union Brokerage Services used to pay its bank brokers a salary until the firm merged that division into First Union Securities, Says Martin Franks, a recruiter who works for Richardson.

Richardson offers a caveat: Banks are not a safe haven for low-level producers washing out of wirehouses. "The banks are looking for the same things the brokerage firms are looking for - assets that match their revenues, brokers who are doing at least $300,000," he says.

Discount Houses Fix Pay

Charles Schwab & Co. has nearly 10,000 reps offering investment advice, according to Mo Shafroth, a firm spokesperson. They are paid a base salary plus quarterly bonuses based upon performance, client feedback, meeting asset targets and a manager's subjective review, he says.

"Schwab attracts investment professionals from all walks of life, many of whom have advanced credentials in the financial field such as CFA and CFP designations," Shafroth says. "Many Schwab investment specialists formerly worked for full-commission firms and came here because of the appeal of working in an environment where there is no inherent conflict of interest."

Debbie Bell worked at Merrill Lynch for a short time, but is now a senior investment specialist and branch manager with Schwab in Morristown, N.J. She favors the pay plan and environment at Schwab. "Certainly you're not going to be able to make a million dollars when you're working on a salary, but we do have incentives."

Because brokers receive quarterly bonuses based on branch targets, the individual competitiveness that exists among wirehouse brokers in a branch does not exist at Schwab, Bell says. Still, the motivation to gather assets is strong. "Since our bonus is probably about 40% of the overall compensation, it does behoove us to make outbound calls and direct some business into the branch," she says.

Bell says the growing popularity of wrap accounts and fee-based business shows that salaried positions may also become more popular. "It gives you more balance," she says. "If you're working on commission, you tend to work until 10 o'clock almost every night. If balancing family life with work is important, a salaried position can go a long way toward maintaining your sanity. It gives you a better quality of life."

Fidelity has 78 walk-in investment centers across the country, staffed by about 1,000 salaried registered reps called financial representatives, according to a spokesperson.

And tax-preparation company H&R Block has two categories of salaried brokers: about 1,400 financial advisers who offer investment advice to retail investors and another 500 reps called Tax Preparation Financial Advisors who perform dual roles, preparing tax returns and offering investment advice, according to a firm spokesperson.

Team Brokers Earn Salary

One of the problems with salaried brokers working for teams is that everything is hush-hush. Firms don't officially sanction the practice, so reps are reluctant to talk publicly, afraid that publicity might jeopardize their quiet arrangements.

Such is the case with a broker we'll call Sarah Smith (not her real name). She earns $75,000 as a salaried rep and has worked with a large team of wirehouse brokers in the Midwest for the past 13 years. Although she works her own book of business, she doesn't qualify for recognition trips or other perks that commission-based brokers enjoy. Her production is part of a team total.

"I've weighed all the pros and cons of working on commission," Smith says. "That sort of thing really is not important to me. You just have to figure out what your priorities are."

Smith was a registered sales assistant in the branch when she heard about a broker position opening up. She admits that there is a fine line between the things she does now as a broker and the responsibilities she had as an assistant.

"I guess the main difference is that I have much more face-to-face contact with clients" she says. "As an SA, I was supporting other brokers in the branch. Today, I'm not supporting anyone but myself."

Maura Copsey represents a completely different type of salaried stockbroker. Copsey is a Series 7 registered rep working as a "client relationship manager" for brokers Bob Nachman and Ben Norwood, partners at First Union Securities in Greenville, S.C.

Copsey holds clients' hands, takes calls, monitors portfolios for performance, calls clients with investment ideas and reassures them when market conditions are rocky. She can also drop a ticket if Nachman and Norwood are occupied.

"She handles the day-to-day responsibilities for many of our client relationships," Nachman says. Although she has brought in assets as an ancillary benefit of her everyday routine, it is not her primary goal. Therefore, he and his partner thought a salary was the best way to compensate her.

"We didn't want here sweating it out every month, having to bring money in the door or generate transactions because that was not the primary goal of the position," Nachman says.

Although salaries serve a purpose for some, industry observers wonder whether the appeal is long term. Peterson has a question for brokers thinking about salaries during this market pullback. How committed will you be to the salary structure when the market rebounds?

Salary Opposition

To put it bluntly, most retail brokers find the idea of working on a salary sickening.

"Sounds like something for the burnouts and the washouts of the industry, or for someone close to retirement," snarls one wirehouse producer.

And because brokers hate the idea so much, most successful producers and industry recruiters seriously doubt that brokerage firms will ever embrace a salary structure on a wide basis.

"There has always been the thought that the industry was going to go that direction, but I've been hearing that for 20 years," Says Paul Richardson, president of Richardson Recruiting Services in Dallas. The broker who does the most business should get the most rewards."

Still, there are some signs that salaries are starting to infiltrate branch offices, especially when banks take over. Chase Manhattan Bank bought San Francisco-based Hambrecht & Quist in December 1999. And when Chase bought J.P. Morgan in December 2000, management decided to merge J.P. Morgan and H&Q. That spawned a change in H&Q's compensation package for its roughly 75 reps, moving it from performance-based to a salary and bonus structure. Brokers where not happy. In fact, a handful of brokers left the firm, now called JPMorgan H&Q.

"This is the traditional J.P. Morgan and Chase method of compensation," explains Mary Sedarat, spokesperson for J. P. Morgan Private Bank. "We think this is the best way to serve our clients. We formatted the compensation structure to retain people, and we have."

A JPMorgan H&Q broker in California confirms the situation there, adding that none of the brokers in his office were upset enough to leave, although the change was definitely uncomfortable. "I think it is just something new for them to get used to," he says.

But an industry recruiter adds the J.P. Morgan Chase has guaranteed brokers from H&Q that they will receive the same compensation in 2001 they received in 2000. "We'll see what happens after that," he says. - M.H.

BrokerHunter Facts: BrokerHunter.com is an employment website for jobs within the Securities Industry segment of the Financial Services Industry.

In summary, this is the place for you to find employment, jobs, careers, opportunities, new jobs, permanent jobs, job placement information or a new position within the Securities Industry segment of the Financial Services Industry.

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