COOPER: Let me start by quoting something Michael King said at the start of last year's roundtable: "In my 35 years in the business, I don't remember a time when the deals have been as good overall as they are now." So where do we stand? Was 2003 really that good, and is 2004 shaping up to be as good, better or worse than 2003?

king: The deals are better than last year. But whether brokers will move, that's anyone's guess. I think they will at this point. UBS has taken a lead. They're making up for the deferred comp, in certain cases, all the way to 100 percent. That's a point I had mentioned over the last two years at this table. No firm before UBS had addressed the deferred comp issue fully.

But their deals are even better than that, although they're not easy to figure out because they base it on revenue generation and not necessarily production. If you're in the right kind of business, it could be very, very good.

My own prediction is the deals will continue to grow this year, and many will start to follow the UBS pattern. That's what usually winds up happening. And it's a tremendous deal.

ELZWEIG: One change that has occurred over the past few years as firms have became more conservative is that deals are more back-end oriented. And now since we've had a good stock market for six months, deals start to go up. But I think back-end loaded deals based on performance at the new firm are not going to go away; the pain of what's happened to firms in recent years will be remembered for a long time to come. And what we saw at the peak three years ago -- where certain top producers got 150 percent up front -- is not coming back any time soon.

But 2004 will be a very good year for us. People are more confident; many want to move, have a good reason to move, and are no longer fearful of doing so.

SARCH: I agree. The psychology of brokers has lagged the market. Many brokers were overly confident about their ability to move their business when we were in the throes of the horrible bear market. And then they got burned and firms got burned in hiring them. Then there was a backlash we all felt into 2003 as people realized the difficulty of moving a business. But brokers were slow to realize that client psychology changed through 2003. They were making money again and were happier. Brokers are now catching up, and that's why I'm also optimistic about 2004.

DIAMOND: Not only do I expect 2004 to be a great year for wirehouse recruiting, I think the bank brokerage deals will be great, too. The wirehouses will have the strongest deals ever, but they are going to be much more selective about who they're hiring. And the bank brokerages, who have never paid deals before because they felt their value-added was in their referral network, are saying they want to play in the same ballpark as the wirehouses. They want the same candidates as the wirehouses and they're paying deals as well.

DEGENHARDT-BURKE: I disagree with Mike King in one regard: Merrill Lynch has the best deals of any wirehouse. They're paying more money, they don't have a cap, and it's a five-year deal versus a seven-to 10-year deal at every other wirehouse.

TESTERMAN: A survey we did last year asked for maximum upfront money a firm would pay a broker. It's now 125 percent, up from 75 percent the previous year.

JOHNSON: Two things I see, looking broadly at the financial services business. One is that retail brokerage is about the only area that's currently hiring. If you look across all of financial services, it's extraordinarily stagnant in terms of head count. Second, the mutual fund scandal is not going away. It's kind of a dark cloud on the broker front because mutual funds will not be able to pay brokerage firms for preferential treatment, which will change the economics of the business. It will change the grids and change how people get paid. And while it may not change things so much, people are going to begin to wonder, "If I go to firm X and they've just paid a $75 million settlement, what will that mean?"

ELZWEIG: To return to Mindy's point about banks: The reason they're doing that is because they've upgraded the kind of people that they're hiring. They used to hire somebody who couldn't make it as a trainee and maybe was in the business a year. Now, they seem very intent on hiring people that are doing at least $300,000, that have some assets, that do some fee-based business and therefore are much more successful than those the banks formerly hired. These new people can leverage the introductions a lot better.

SCHWARTZKOPF: With the banks, one of the big draws, obviously, is the amount of assets they give out. For many brokers whose books have been burned or severely reduced there's a big attraction in getting a $30 million book to run plus whatever assets you can bring over. Bank brokerage programs are now a great deal different from when I was in the brokerage business. Now, a Wachovia program looks very much like a UBS program; a broker can sell the same products and services.

McGINNESS: Just a general comment on signing bonuses or recruiting bonuses and their impact: Last year, when we asked advisors to name the factors that came into play when they selected their current broker-dealer, 90 percent said that signing bonuses were not a factor.

And with respect to banks, there are a few that are going to do well in the recruiting game. For the most part, though, they're going to have a difficult time drawing seasoned wirehouse advisors. There are still a lot of limitations in most banks on doing solicited individual securities business. In fact, at most bank brokerage programs, there's still an outright prohibition on that kind of business. And certainly not all banks have established managed account programs or fee-based platforms of a quality that is going to draw an advisor used to programs at Merrill Lynch or Smith Barney or another large firm.

DIAMOND: At the larger banks, it's not about handing a book of business over. It's about developing a referral partnership with the banking partners, the head of business development, and the heads of commercial banking and trusts and estates. We tell candidates that if they continue to work their books with the same tenacity as they did at a wirehouse, and drive those banking partnership relationships the way you would in prospecting, you've got a sure prescription for success.

I also agree that wirehouses have a cloud over their heads because of the mutual fund scandals. And that's one of the biggest reasons the banks -- especially the big national banks -- have gained the trust of many financial advisors. The big banks are operating their businesses as wirehouses within a bank, so advisors are able to get a lot of the same fee-based products, inventory products, service technology, operational support, and everything else they have in a wirehouse without that cloud over them from the scandals.

SARCH: One of the major trends we'll see in 2004 is the major brokerage firms moving toward flat commission schedules -- not one payout, but less and less differential among products. All those things are going to be under increased scrutiny. The firms don't want to allow anyone in any kind of arbitration to say that a broker was incented to sell an insurance product or a mutual fund product because compensation acted as a lever.

TASNADY: I'm curious; how much business does the average broker bring with him when he moves to a new firm?

DEGENHARDT-BURKE: For a good broker, it's probably around 90 or 95 percent.

SCHWARTZKOPF: About 70 to 80 percent is moveable. From Merrill, we would always count on less coming over -- maybe 50 percent of the assets.

KING: I would say 75 to 80 percent.

ELZWEIG: It's really all about the asset profile. When you're dealing with larger producers, they typically have fewer but bigger accounts. Those accounts always go.

SARCH: I also think it comes down to a broker being very honest with themselves. If you're a Merrill Lynch broker who's inherited a fourth-generation Merrill account, it's pretty presumptuous to think that account will move with you.

But you also have to look at the products in those accounts. Lending relationships, such as those involving mortgages, are much tougher to unwind. But the basic transactional or managed money relationship can move if the broker is servicing the client well and can make a compelling argument about why this is better for them, not just why it's better for the broker.

ELZWEIG: Regarding banks, relatively few large producers will go there because in a bank the psychology is different. At a bank, the client basically is dealing with a person who services their account and who is relatively interchangeable. When a broker goes to a bank, in exchange for getting referrals, you lose control over the revenue stream. You go from being an entrepreneur to being an employee, which means you can't transfer assets as well.

WAREHALL: I agree. I don't know about New York, but in Chicago many of the large banks have a reputation for having very volatile internal politics. When Jamie Dimon took over Bank One, a number of high-producing bank brokers literally had their books taken from them. Since management inside many banks is seen as arbitrary, there's an apprehension among brokers about being able to control their business at banks.

COOPER: Let's talk about the kinds of tools brokers have or would like to have. Are research and technology important considerations when brokers change firms? Are some firms known for better technology, and does that act as a lure?

SARCH: Most brokers, if they have been with only one firm and start exploring others, can't take technology for granted. They have to take a very hard look to make sure they'll have the same resources they are used to. And that depends on the broker's niche. If they are a financial planner, they'll want to see the latest Monte Carlo software at the new firm. If they live someplace where there's a lot of snow or if they want to work from home on Fridays, remote access becomes very important.

Platforms can be overwhelming. That's why firms are investing so much time in the training of their financial advisors. And when you talk to some of the people who do the training, as I have, they're amazed that people who are very astute will know only a small piece of what the workstation can do because that's the piece that's important to their business.

SCHWARTZKOPF: I've seen very few brokers move because of technology. It comes up in conversation, but sometimes the problem is actually a sales assistant problem. They're being spread thinner and thinner to cut costs, and a lot of brokers are very unhappy with their sales assistant coverage.

DIAMOND: I agree with Rich [Schwartzkopf]. Technology isn't the main reason somebody would move or the first thing they look at when moving. But once they get to the second and third phase of the interview or due diligence process, they are looking hard at technology because they expect a certain minimum level that at least matches or is better than what they have.

Interestingly, in talking about the banks, the one area where banks seem to lag the wirehouses is in technology. As they continue to try to compete with the wirehouses for the same level of broker and clients, they are going to have to do a lot to improve their technology.

McGINNESS: In a survey we did at Cerulli this past year, autonomy and firm resources were the two most important factors in making the decision.

KING: Every broker checks out technology to some degree because they want to make sure that what they'll get is at least as good as what they have. Research is more complicated. It's such a hodgepodge because it depends on what they're looking for. But I agree with Rich. The sales support issue is something I hear over and over again. Brokers complain that their help is incompetent and that if they didn't have to correct so many errors they could spend all day prospecting and talking to clients.

TESTERMAN: In the studies we've done, technology doesn't rank very high as one of the important factors in going to another firm. In fact, only about 3 percent of brokers said it was an important aspect of their firm.

It's funny: There seems to be a disconnect between what firms think brokers want and what brokers actually believe is important. When you ask firms what brokers think is important and they say stuff like payout and firm culture. But the brokers say what's most important to them is the stability of the company, followed by independence.

JOHNSON: Firms have spent so much money on technology and research that they want to believe that those are important to the users. But firms have wasted tens of billions of dollars creating platforms that no one knows how to use. A good broker may use 25 percent of a platform. Research is similar. I always ask people, "Have you ever read a Wall Street research report from cover to cover?" Fewer than half have ever read one. The reports look nice, but in terms of clients ever really reading a 50-page research report on the semiconductor industry, in the real world it doesn't differentiate you.

The differentiator is money. It's not politically correct to say that pay is the most important reason or the only reason you're moving, but go around this table: How many brokers have moved recently for less money? They all talk lifestyle, telecommuting, clients, environment. But does anyone around this table know of someone who took a huge cut to get any of that?

KING: Of course money is the key, key factor here. But over the past few years, the playing field among the major firms has become fairly level. Five percent difference is about the most you can go. That makes the manager essential in the recruiting process and the image of the firm. If a firm is in the news in a bad way, brokers get afraid to go there. They're afraid of losing their book.

ELZWEIG: I'm finding, among the better brokers, that the level of due diligence now is much higher than what I remember many years ago. If they are active in managed accounts, for instance, they really look into the managed account program. Naturally, the money has to be there and the manager has to be reasonable, but people are looking more closely at the services. We all know that managers can turn over rather rapidly; brokers are trying to choose platforms that are going to meet their needs for many years. I've had people who asked very specific questions, whether it was about bonds or structured products. They really got under the hood.

SARCH: Similarly, we can't underestimate the level of due diligence that the firms are doing about the brokers. It's become a free-agent marketplace; for the best people there really is unbelievable opportunity, but once a certain line is crossed, whether it's mutual fund timing or compliance problems, there is no market. And people don't realize that until they're out there. I now encourage brokers to do a level of due diligence themselves and scrutinize themselves to see whether they really have options. A lot of them are under the illusion that they have choices when they don't. And for many there are better opportunities than they imagine, even if their numbers are bad, because their business stands up to scrutiny.

WAREHALL: I agree. Everybody's doing much more due diligence. The firms are very particular about who they take. I hear, for example, that Morgan Stanley doesn't want anybody who has three compliance disclosures -- even if the compliance issues are innocent.

I'd also like to point out an irony. While everybody is singing the fee-based song, in Chicago and probably in New York there are so many traditional transactional brokers who are very successful. The very best are doing a blended business. So when you find a low-level producer, they better have fee-based business. But if you're doing millions and millions of dollars of business and you're very good in compliance, the firms don't care if you're doing any fee-based business. They'll take that transactional broker because it's big business.

FERBER: I agree. It's unfair to call it a buyer's market. If you're a weak producer or a strong producer with some serious compliance issues, it's a buyer's market. But if you did $2.2 million, all transactional, who's not buying?

WAREHALL: When you have the top talent, I sometimes feel like a sports agent. These people can write their own ticket. And the firms will kiss whatever they have to kiss to get them.

TASNADY: Many of the firms that we work with are segmenting themselves to work with the high-end market, the middle-stream market and the smaller-asset market. That's had an effect on their approach to talent management, and it's created different types of services, advisors, jobs and careers.

From a recruiting perspective, have you seen any effect of all this? Do you see younger people starting out at call centers, for instance, instead of cold calling? Or people who are making a lifestyle choice and choosing to get a salary and more time off instead of going the traditional route?

McGINNESS: Something analogous that's occuring in the wirehouses and in RIA practices is the phenomenon of having a team or group practice where individuals have different roles. The senior advisor is typically the asset gatherer, who'll bring on somebody who just came out of one of the 60-plus degree programs in financial planning as an undergrad and have them write the financial plans. They're not an expensive resource, they deliver a decent amount of value and they free up time for the advisor to do what he or she does best. So there are different career paths that did not exist before.

COOPER: I would imagine that most of you deal with people at the higher end of Andy's [Tasnady] scale. But do you see what he's talking about with the entry-level brokers? Are there more teams and more lifestyle choices among younger brokers? And, since you're dealing with higher-end brokers, what do you see in terms of the firms' wealth management efforts? Is it real or a fad?

KING: The team approach is being fostered, encouraged, pushed and required by a lot of the major firms because it locks people in. It's good for the firms because how can the broker take away his clients if three people are working with the client? It's also good for the broker because when he's out of the office, he has team members he can trust.

Wealth management is the fad of this year, but it's true that in a fee-based, advisory business there are fewer chances for problems or complaints. The fad will change again, but asset-gathering will stay.

JOHNSON: A number of firms dramatically overestimated their ability to really make the wealth management product work. Everybody thinks they're Goldman Sachs or Morgan Stanley or Merrill, but the truth is that the whole private banking/wealth management effort has been a disaster. Firms didn't realize that they didn't have anything special to add. They all have these pie charts saying they can add a point or two of market share because they're big in a certain market, but they've discovered that wealth management at the high end is extraordinarily competitive. Goldman Sachs is not just 15 percent better than somebody else; it's 10 times better than someone else if you're a customer with $50 million or $100 million.

SARCH: I think there's been a backlash to both wealth management and to teams. On teams, everybody was rushing to get married, and now there's a whole bunch of divorces. And these divorces can get very nasty. Firms are forced to pick among the brokers unless there was a pre-nup. Junior brokers claim to be responsible for a huge portion of the business, and as recruiters we find it's difficult for the hiring firm to determine whether or not that's the case. And when you talk about looking forward, those junior brokers, unless they have their own established track record, really are stuck. Let's face it, if push comes to shove, who is the firm going to back? They're going to back the senior broker.

And on the wealth management side, I agree with Alan [Johnson]. I know a number of PWA guys within Merrill Lynch, as an example, and they're finding it a lot less rewarding to deal with those clients. How much financial planning does somebody with $50 million need? Do such clients really worry about paying for the kids' education and other basic things? Most brokers I find like dealing with a $1 million to $5 million business owner who's got problems, who has a 401(k) and a pension and a personal account. They can be the key person to such a client, who'll appreciate the broker's services and won't be nearly as sensitive price-wise. Brokers like the idea that they can add value. It helps them as far as their ego gratification and it helps them as far as actually doing something that produces an immediate reward.

TESTERMAN: Since everyone here deals with the high-end producer, we see something a little different. I think all the top 10 firms are battling each other over 2 percent of the market. Who takes care of the other 98 percent of the population?

We continue to see a trend toward the low-cost provider of services. I was actually shocked by the interest level among the firms in our survey in producers doing $25,000 or less a year in production.

COOPER: Who's hiring the $25,000-a-year producer?

TESTERMAN: It'll be an independent firm. They'll be interested in a person doing $80,000 if they've been in business a year, or $100,000 if they've been in business a couple of years, or $150,000 for three years. If they've been in business 20 years and are doing $80,000, the firms probably won't be interested. But there are a lot of independents that fall all over themselves to hire somebody doing $100,000.

FERBER: I love the issue Steve [Testerman] brought up because I see something like that at the larger firms. Brokers there are complaining that the firms don't want them to get involved with smaller accounts. But many brokers feel that most big accounts start as small accounts. On that level, I think firms have missed the boat.

SCHWARTZKOPF: Let me get back to team building. I've talked to many people about the issue and have been in the industry and created those programs. They were built for one reason only -- not to help the firms or the clients or the brokers. They were built to keep assets at the firm. There's no other reason, no matter how they spin it.

And as far as the call centers are concerned, it's terrible what the wirehouses are doing. The firms are not only taking the small accounts, they're taking the big accounts, too. The broker is trapped in the middle.

KING: Merrill and Morgan Stanley are keeping the market segmented. Smith Barney and UBS are offering existing offices central support systems. Which approach is smarter? It's hard to tell. I think the broker still has to make that decision overall.

McGINNESS: I think Nick [Ferber] made a good point. There is a bit of myopia among the wirehouses with respect to the small account issue. One of the great advantages of the independent model is that they are free to work with someone as they slowly build their wealth. Then, when the liquidity event occurs, even if it's several years down the road, the advisor is going to get the windfall. True, this doesn't happen with every client and certainly there are a lot of $50,000 accounts that never will grow much beyond that. But at the same time, it's a mistake, I think, to have hard and fast rules about small accounts, especially as some of them are a prerequisite for having some of your larger accounts.

ELZWEIG: I would disagree with the idea that wealth management is a craze. Firms have been hiring more specialists in areas like derivatives, estate planning and tax planning, and I think they're very serious about taking a small part of their sales force -- people they deem capable of dealing with very large accounts --and going head-to-head with private banks.

COOPER: Let's shift gears. When you speak to brokers about changing firms, how much do they know about the state of the broker job market or about other firms? Do they understand the alternatives at regional firms?

WAREHALL: I think each individual is in the middle of his or her own forest. They may claim to know what's going on in the Street but they just know what's going on in their office.

JOHNSON: It's also the firms that are clueless about the other segments of the market. I mean, if you look at how they've handled the Internet and discount brokerage, they had no knowledge of each other. The firms themselves can be very nave.

DIAMOND: The big firms have done a very good job of brainwashing their producers into believing that the reason client A is your client is not because you're a great broker but because they love the Merrill Lynch name or the Morgan Stanley name. And I think a lot of brokers have their nose to the grindstone and don't bother to look elsewhere.

One of the major components of our job as a recruiter is to educate people. Before we sell, we educate about the landscape of the industry and what's out there.

KING: You'll find a lot of brokers who don't know a thing about what's out there. Some are the grandiose types. They talk about a friend getting 400 percent for moving and they want the same deal. Or they want 200 percent plus the cost of their children's college education. Total insanity. But there also are brokers who have a more realistic understanding of the numbers, yet no idea how it all works.

FERBER: I want to make a quick comment on brainwashing. I just talked to someone at Morgan. He's not doing well -- a few hundred thousand. When I spoke about regionals, he said he couldn't give up the Morgan name. If I could have reached through the phone, I would have shaken him by the lapels. He's in a very wealthy market in South Florida and he could talk to Legg Mason or Janney Montgomery, but he won't because he's been brainwashed to think it's a step down. And as far as other brokers know what's out there in terms of deals, most are stuck in the forest.

WAREHALL: I think we all hear things from brokers that blow our minds. They have lots of misperceptions about regionals. The quality of life there can be very good; you can have tremendous technology and a much better corporate culture and working environment.

SARCH: It comes down to knowing your client and knowing your client base. If the broker can't make a compelling argument to his client as to why he should move to a regional firm, then he shouldn't move. But if the client is doing a basic transaction or managed money and little or none of the exotic things, the business can be handled generically somewhere else.

McGINNESS: One thing we've seen is that wirehouse brokers have no idea what it's like or what it takes to become completely independent. I get calls all the time from good producers, people with $50 million books at the wirehouses, who are thinking about it but who don't know the first thing about what's involved in setting up their own RIA. That's one of the reasons some independent firms have put together transition programs.

COOPER: As we wrap up, any last words?

JOHNSON: I think the industry's underestimated compliance. People are going to start going to prison, which historically has not happened. And the manager who covers up will go to jail. There's basically been a scandal a week in the financial services industry and the industry still doesn't get it. It doesn't get it in sexual discrimination, it doesn't get it in client relations or in mutual funds. The industry, of course, hopes it's a temporary phenomenon, but I think it's a whole different environment. I think a firm can blow up. It really can just implode and go out of business.

Recruiter Roundtable Participants
Carri Degenhardt-Burke
Degenhardt Consulting
Jersey City, N.J.
201-395-0222
stockbrokernews@aol.com.
Mindy Diamond
Diamond Consultants
Chester, N.J.
908-879-1002
mdiamond@diamondrecruiter.com.
Mark Elzweig
Mark Elzweig Co.
New York, N.Y.
212-685-7070
melzweig@elzweig.com.
Nicholas Ferber
Sanford Barrows Group
North Miami, Fla.
305-999-6240
nferber@sanfordbarrows.com.
Alan Johnson
Johnson Associates
New York, N.Y.
212-221-7400
ajohnson@jaiconsulting.com.
Michael King
Michael King Associates
New York, N.Y.
212-687-5490
michael@michaelking.com.
Matt McGinness
Cerulli Associates
Boston, Mass.
617-437-1098
mmcginness@cerulli.com.
Dan Sarch
Leitner Sarch Consultants
White Plains, N.Y.
914-682-4000
danny@leitnersarch.com.
Richard Schwarzkopf
Schwarzkopf Recruiting Services
New York, N.Y
917-696-4693
rmschwarzkopf@aol.com.
Andrew Tasnady
Tasnady & Associates
Port Washington, N.Y.
516-414-4055
tasnady@tasnadyassociates.com.
Steven Testerman
Brokerhunter.com
Cumming, Ga.
888-955-6795
steve@brokerhunter.com.
Paul Warehall
Esquire Staffing
Chicago, Ill
312-795-4400 x 234
paul@esquirestaffing.com.
On Wall Street
Evan Cooper, Editor-in-Chief
Nancy Mandell, Managing Editor
Tony Chapelle, Senior Editor

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