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Friday, November 20, 2009
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Watch Out for the Recruiting "Hard Close" at the end of the year!
The retail brokerage world still does a lot of transactional business. One of the things that the industry is not proud of is how much transactional business is generated at the end of each month. Advisors get to a certain date near the end of each month in order to get credit on trades for their next paycheck. Short on your mortgage for December 1? You’ll figure out how to sell something to somebody before November 30th !
Branch Managers, while being the “end of the month transaction police”, are guilty of a similar phenomenon at the end of the calendar year. In almost every firm, Branch Managers are given a target number for the number of recruits that they are to bring in. Sometimes they are given a number for trainees as well. So here we are, it’s mid-November, and we all can see the end of year around the corner with Thanksgiving, Christmas, and New Year’s. If we count the last two weeks of the year as wasted, and nothing happens next week, Thanksgiving week, then there are only three real business weeks left in the year. Managers who are not hitting their quota for recruits are getting desperate; their 2009 bonuses might ride on some Advisors joining their branch before the end of the year.
Jordan Schultz, my Executive VP and Partner, suggests the following: “If the Manager who is recruiting you is pushing for you to start before the end of the year, ask him or her why that is important to him or her. Hopefully, the Manager will come clean with you about why. If they can’t explain it adequately, maybe you’re picking the wrong place to join.”
Now, many managers did get screwed on their bonuses for 2008, even while hitting their numbers. They do not want to give their firm any justification to do it again. Throw in dozens of managers who are without jobs, and it’s easy to see how so many of these guys are feeling insecure. However, that does not excuse a hard close and messing with an Advisor’s career: It’s just as unethical as the Transactional Advisor making trades to make his or her month.
Posted on:
November 16, 2009, 2:10 PM EST
By: Danny Sarch
The Merrill Lynch Footprint
Years ago it was a common refrain that “Merrill Lynch trains ‘The Street'”. Merrill was known as the best and most prolific trainer of rookie brokers. Competitors loved scooping up these newly minted, well -trained Advisors after their training period was over. Merrill never liked that too much and began suing the hiring firms and getting Temporary Restraining Orders (TROs) to scare the Advisors and their ardent suitors from repeating this travesty. The modern day recruiting wars had begun.
It's nearing the end of 2009, Bob McCann is now running retail at UBS, and lo and behold, all of the major firms, and a couple of minor firms, are all being run at the highest level by ex-Merrill Lynch executives. Jim Hayes is at the top of the Private Client group at Wells, having defected from Merrill Lynch to Wachovia in January 2006. James Gorman is now the CEO of Morgan Stanley, after running the Private Client business at Morgan Stanley. He defected from Merrill Lynch later in 2006.
In 2002, Bob Dineen, who held various senior management roles at Merrill Lynch including responsibility for all fee based businesses, defected to run the Broker-Dealer business at Lincoln Financial. And in 2001, Joseph Moglia, who had been running the entire product area of Merrill, the culmination of his 17 year career there, left to become the CEO of TD Ameritrade, where he is now Chairman.
I'm probably missing some, so if anyone out there can add to my list, I would appreciate it.
What does this mean? First, it shows us that the corporate pyramid is awfully narrow at the top. Second, it shows us that “The Street” values Merrill Lynch trained executives. The famous bank robber, Willie Sutton, famously said that he robbed from banks because that's where the money was. Merrill's competitors poach from Merrill because that's where the talent is.
One departing Merrill Advisor told me: “I'm not leaving Merrill Lynch. Merrill Lynch left me.” Time will tell if the new Merrill, now very clearly under the Bank of America umbrella, will produce the same talent and the same admiration that it did in the past.
Posted on:
November 12, 2009, 10:26 AM EST
By: Danny Sarch
Growth Problems
If you have a 15,000 person sales force, and your turnover is a mere 8% (a historically very low number), you better be finding 1,200 new Advisors every year just to stay even. Attrition counts retirements, deaths, terminations, as well as Advisors who leave to go to the competition.
There are only four ways for a Retail Brokerage Firm to grow its sales force and increase sales: “same store sales” (i.e. increasing the productivity of the existing Advisors), training, acquisition, and recruiting.
While the big firms all want their current Advisors to do more business, fiscal realities have made them cut many of the resources that made it easier for Advisors to leverage their time. Specialists and internal wholesalers from virtually every department have been cut. Since the metrics to measure how productive these folks are were never precise, these professionals who were often seen as true partners to the sales force were an easy mark when cost cutting became the latest de facto “bylaw” in the industry. In other words, firms are encouraging their folks to do more, while giving them less help than ever to actually do so.
As I’ve written before, acquisitions are a crapshoot. You still have to pay to keep the Advisors in their seats. Many of them leave anyway. And, based on the recent spate of activity in the industry, there are very few targets available.
That leaves recruiting and training. The recruiting wars (just the phrase makes me tingly all over!) go on unabated. But while recruiting remains a necessity to stay competitive, it has never been proven to be a true growth strategy by itself.
Training Advisors remains as tough as ever with embarrassing success ratios across the industry. All of the firms have aging sales forces, so it strikes me as logical that the firm that can figure out how to partner skilled trainees with older Advisors so that the business can naturally be transitioned over time, will be the firm that is truly able to distinguish itself and grow successfully in the next decade.
Posted on:
November 9, 2009, 9:59 AM EST
By: Danny Sarch
Lessons Big Firms Can Learn from Small Firms
Legacy Advest and Legg Mason Advisors, once they experienced the onus of Merrill Lynch and Smith Barney respectively, have fled in droves to firms like Raymond James, Janney Montgomery Scott, Stifel, and Robert W. Baird. These are Advisors who became frustrated with Big and chose Small. I spoke with many of them to understand why. Senior Executives at the Big Firms should pay attention:
1. Platform and technology advantages are not as important as the ability to get problems cleared up.
“Platform” is an all encompassing word meant to describe the offerings to Advisors and their clients. It includes all the tools and products that Advisors use to manage their business and their clients’ holdings on a daily basis. However, if the Advisor cannot get a person on the phone to take ownership of a problem, like a missing dividend, or to figure out why a check did not go out to a client, then the platform advantages do not matter. One Advisor put it this way: “I can’t tell my client about the great Alternative Investment idea when I can’t tell him why the check I promised him would go out two weeks ago has not arrived yet.”
2. Personnel changes matter to the field.
Advisors like to know that people at their firm, who do not produce, have a stake in their success. Of course, a Branch Manager should care about the success of the Advisors who report to him or her. Big Firm Advisor: “I always felt that my manager was looking for another job. How can I truly believe that my manager is interested in my long-term success when I know he is always interviewing for other positions?” In addition, the best Advisors form wonderful, symbiotic partnerships with the product liaisons who are crucial to their practice. When those people are laid off, another crucial tie to the “mother ship” is severed.
3. Make as many decisions as possible as close to the local branch as possible.
Advisors who have experienced both Big and Small tell me that the Branch Managers and their bosses at the Small Firm are able to take responsibility and make decisions faster than their Big Firm competitors. “At my old firm, everybody was scared to take responsibility for some of the most basic day to day decisi... Read full story Posted on:
November 4, 2009, 2:24 PM EST
By: Danny Sarch
Is Big Inevitable, or Just Bad?
In the last month, I've met with multi-million dollar producers from all of the major firms. On one hand, there is a lasting bitterness at the disintegration of the wealth they had in their company's stocks. On the other hand, there is a feeling of hopelessness because they fear that there is no place to move to, and if they do, that place will be consolidated as well.
“Sarch,” one multi-million dollar producer said, “I have no loyalty to this place. They have written me a check to stay, but I would love to know where else I could go. And if I do, what assurances do I have that I won't end up at the same place I left?” To his point, Morgan Stanley recruited a slew of Smith Barney Advisors in 2008 only to become Morgan Stanley Smith Barney in 2009.
Smith Barney, Merrill Lynch, Wachovia, Legg Mason, Prudential Securities, Advest, McDonald Investments, AG Edwards, Piper Jaffray
With all of these firms disappearing as independent firms in such a short time, it's easy to be cynical and say that big is inevitable; everyone will consolidate sooner or later. Big firms always bragged that their product lines were better, that their technology was superior, that they have more scale and therefore better profit margins, that their brand names have value in retaining clients.
But can you keep your Advisors happy in such a big environment? Senior management at the Biggest Firms, here are your challenges:
1. Since you are so big, each individual producer feels less important to his or her branch, his or her region, and to the firm as a whole.
2. Since you are so big, you must manage to your least common denominator; the rules for your most experienced Branch Managers are the same as they are for the raw rookie Branch Managers. In order to stay “compliant” with so many Advisors, you must assume that ever Advisor is doing something wrong, and they must prove themselves to be right, rather than assuming that they are doing what's right in the first place.
3. With almost all key decisions made from the top, the perception is that you have lost the entrepreneurial spirit and flexibility that attracted your best Advisors to you in the first place. The local office, closest to the field, has less and less autonomy on a... Read full story Posted on:
October 30, 2009, 7:17 PM EST
By: Danny Sarch
Some Quotas Are Back
The Wealth Management industry, a subset of the Financial Services industry, has taken a lot of heat over the years. Some of it is deserved. Remember 8% loads, limited partnerships, biased research? Good times! That said, the securitization of mortgages which caused the massive losses in the industry had little to do with the Wealth Management industry or its practitioners; in many ways, they are amongst the victims here, and not at all at fault. But, as part of a suffering, maligned, bigger industry, and as the pressure to maximize revenues for a parent organization builds, I am seeing the big firms return to some old, questionable tactics.
Wells Fargo Advisors, nee Wachovia, did not give retention bonuses to the Wachovia folks upon takeover. Instead, they put bonuses in place that are paid to Advisors if they hit an aggressive quota of a proprietary financial planning product. Now, I’m not going to argue that Financial Planning is a bad thing. And it certainly is better to put a quota on a process that is useful than on a product which may or may not be appropriate. However, put a quota on it, with a big carrot attached, and you will see some abuses. I’m told that there have been some falsified plans done by Advisors (eg. a financial plan done for “Fluffy the Cat”), enough to slow the payments to all of the Advisors who thought they had earned their bonuses.
Morgan Stanley Smith Barney has given their newly minted complex managers a target number (read: quota) for the number of trainees that they are to hire by year end and for 2010. Presumably, senior management is focused on keeping head count numbers up. History shows that only 2 in 10 of these trainees will still be with the firm in two years. Maybe, just maybe, shareholders would be better served if the money spent (wasted?) on trainees instead be invested in the professional development of the existing Advisors. Morale within legacy Dean Witter offices was crushed years ago by the high turnover of trainees. That lesson is long forgotten in the quest to have the bragging rights to the biggest salesforce in the industry.
Posted on:
October 28, 2009, 11:00 AM EST
It's Payout Change Season!
It’s Payout Change Season!
For Retail Financial Advisors with the Big Firms, Autumn is when leaves fall, when the weather cools, and when payouts change. Senior managers at the big firms love tinkering with the way Advisors get paid. Publications plan their big “Payout Issues” and everybody struggles to understand the latest changes.
Some observations:
1. It is an exercise of futility to make a career decision based on payout. Since all the firms change their payouts often, crunching numbers on your old firm’s payout vs. your prospective firm’s payout is just a waste of time. The two point swing one year will just be a two point swing in the other direction the following year.
2. Though grids have become simpler over the last few years, the payout plans themselves have become more complicated. Grids are easy to understand; produce X and get paid Y% on that amount. However, every firm has a small ticket policy, whereby Advisors do not get paid on a ticket below a certain amount. Throw in a complicated discount sharing policy, a small account policy, growth incentives, deferred compensation, some product payout differences, and you realize that it takes an advanced degree and a scientific calculator to truly figure it all out.
3. Firms use Payout Plans as a way to encourage certain behavior. The Morgan Stanley Smith Barney plan just released and covered in Investment News and other publications gives substantive bonuses to bring in new assets. Past payout plan changes at the Big Firms rewarded Financial Planning processes and fee based business. Want to learn what the focus of the Big Firms is for the new year ahead? Read the fine print of the new payout plan released in the fall.
4. Finally, the street-smart Advisor knows that there is only one way to truly know their payout, through all the fine print and details: At the end of the year, put your W2 amount in a fraction over your total production.
I guarantee it will not be the same number that you thought it would be on the Grid when you got it the previous October.
Posted on:
October 22, 2009, 8:32 AM EST
By: Danny Sarch
If You Are a $350,000 Wire House Producer......
“Good morning, Danny Sarch here.”
“Hi Danny, this is Bill Smith; Jack Schwartz suggested that I call you. “
“Nice of Jack to think of me, Bill. I’ll make sure to call and thank him.”
“Jack said that you got him a great deal at BigFirm and I want that deal too.”
“Tell me about your practice, Bill.”
“Well, I’ve been in business for 13 years, all with the same ReallyBigFirm. I’ve got about $45 million in assets, about one-third is fee based. My trailing 12 months’ production is about $350,000. But two years ago I did about $450,000.”
“Bill, I don’t mean to sound cynical, but that means your ACTUAL trailing twelve is….$325,000. That about right?”
“More like $310,000.”
“And two years ago, at your peak, you really did about $425,000?”
“Actually, $410,000.”
Sarch internal monologue: “At least he’s consistent with his lies.”
“Bill, there is no deal for you at BigFirm.”
“But Jack got 250% all in!!!”
“Jack was doing $1.5 million, with $200 million in assets, almost all fee based.”
“But I want the same deal that he got!!”
“Bill, I want to be 6’2” tall and have all my hair back, but that’s not happening any time soon either.”
“What the hell happened? Two years ago, they were all over me.”
“The world changed, Bill.”
“What the hell do I do now??”
“Now, you think about smaller firms, or going independent, or joining another group that already is independent. And Bill, your payout might be cut where you are also. You need a Plan B. And quickly.”
Uncomfortable silence. The truth always hurts.
Posted on:
October 19, 2009, 3:49 PM EST
By: Danny Sarch
The End of the Andrew Hall Saga
Fact: Andrew Hall was owed somewhere around $100 million based on his contract with Citigroup. This was based on a contractual agreement which has not been disputed.
Fact: This extraordinary agreement became a political problem for Citigroup. How could they even think of paying so much money to one person when they are owned by the taxpayers who just saved their butts from bankruptcy? Horrors, horrors.
Fact: Citigroup just sold Phibro, the group that Hall runs, for $250 million.
Fact: Phibro reportedly earned Citigroup an average of $371 million over the last five years.
Now, I'm not an Investment Banker. I'm just an educated observer. But I'm also a shareholder in Citicorp, both in actual shares and as a taxpayer. As an actual shareholder, and a de facto shareholder, I'm pissed off.
In a normal, non-politically charged environment, Phibro gets a price dramatically higher than $250 million. I understand that it is a trading business so recurring revenue is difficult to predict. That said, because the political pressure to not pay Mr. Hall and his team what they were contractually required to be paid became so acute, shareholders lose.
I do not understand why Citi could not take the case of keeping Mr. Hall (i.e. pay him what they owe him) to the public and the government. His track record is undisputed. How is Citi, which has lost billions and billions and billions, better off without a subsidiary that made an average of $371 million over the last five years? Is there anyone out there who can argue that Citi is better off for not paying Mr. Hall? Surely paying him his $100 million without the political debate would have resulted in a much higher price for the business.
Yes, paying $100 million to one person for anything is obscene. I get it. Some people want to penalize Citi for taking all of our taxpayer money and then having the chutzpah to want to pay any one person so much money. I get that too.
And now, we all lose the benefit of all the money that Phibro was making for Citi over the years, while not getting anything remotely close to fair value for the business. The “outrage of the masses” costs all of us.
Posted on:
October 13, 2009, 3:16 PM EST
Everyone Should Have a "Plan B"
A 45 year old, 20 plus year veteran of a Big Firm frustrated me last week. She told me how she was glad that the world had settled down, yet she was still nervous about her current firm. That said, she still was unwilling to look at any other firms because she did not want to distract herself from what she was doing.
Okay, I do make a living getting people to move, and a move starts with an interview, so I’ll get how self-serving this may sound out of the way. Fair enough. But let’s have a reality check here. Way back in 2002, looking at the world through post-9/11-Lasix-enhanced eyes, my wife and I had contingency plans for a biological attack, or chemical attack, or nuclear attack on New York. Way back in 2008 (that’s sarcasm for those who are more literally minded), the nation’s financial system almost failed as virtually every Big Firm went through a weekend of death: employees went home on a Friday not sure what firm they would be working for on Monday. Advisors and their clients were panicking.
We all hate thinking about it, but sometimes the worst case scenario happens. Having a contingency plan, a Plan B, in case something bad happens is just smart in life and smarter in business. The best Advisors construct financial plans and portfolios for their clients with great care, taking all possible scenarios into consideration. Those same Advisors were also the same ones who carried concentrated positions in their own company’s stock and had their own net worth’s destroyed even as they tried to protect their clients.
Unlike most of the world, an Advisor with a book will always have options, somewhere to move in a crisis. An Advisor not knowing where to go before the crisis hits is malpractice to his or her clients. More importantly, it is corporate malfeasance to the shareholders that the Advisor goes home to every day.
A wise man once said: “Those who cannot learn from history are doomed to repeat it.” Folks, this "history" happened one year ago. Do you have a Plan B?
Posted on:
October 5, 2009, 8:15 AM EST
By: Danny Sarch
Good People Have Options
An old contact called me today. He is high up in the sales apparatus of a mutual fund company. Though acknowledging how tough business has been, he declared how healthy his company was and how they were using this opportunity to acquire the type of quality talent that was not available before the recession. That said, he told me how they had lost some amazing candidates because his Human Resources department had tried to take advantage of the candidates bad luck and given them lowball offers. Though out of work at the moment, two of the best candidates they had interviewed also had other opportunities. My buddy lost the best candidates because his firm was shortsighted and arrogant.
Another good friend is working for a “TARPed” financial services firm. I tease him about how hard he is working and that I appreciate it as a taxpayer/shareholder. All kidding aside, he is absolutely miserable. He is working seven days a week for twelve hours a day and sees no light at the end of this tunnel. He does not know what kind of bonus he is getting, if any, and would take a job for less money just to bring his life back to some semblance of normalcy. He will find a new job because he is good at what he does. We taxpayers/shareholders will all lose because this same scenario is happening on a much larger scale throughout this company. No hope, no future, no family life, no fair compensation; not exactly a recruiting assignment that this headhunter wants to take on.
Lessons to be learned: The best companies are learning that the incremental dollars saved from giving a fair offer and a lowball offer will cost them quality talent because the best candidates almost always have a Plan B. And they are learning this lesson because they are GOOD companies. The second lesson is for those in our government supervising TARP firms: you are driving the best talent away; distressed companies have to pay MORE, not less, to attract and retain top performers. They will find other opportunities and all the money we will have spent as taxpayers/shareholders will have been wasted.
Posted on:
October 1, 2009, 3:42 PM EST
By: Danny Sarch
Arrogance Is Out
A CEO of one of the independent brokerage shops told me a story the other day. He and his team normally fly a prospective recruit in the night before a home office visit and they all go out to dinner. During the first fifteen minutes, the recruit was just plain rude to the waiter. His attitude said: “I'm spending the money (though the CEO was treating!) and you're my servant this evening. So I am entitled to treat you like dirt.” When the recruit went to the restroom, the CEO turned to his team: “Put him on the first plane back in the morning. We're all wasting our time.” As I look for Advisors and Managers for his staff, the message is loud and clear: Jerks need not apply.
The CEO of another relatively new shop for retail brokers has never needed to illustrate his thoughts about this more clearly to all of his staff, at all levels: “Sarch, we have a no ***hole rule here. Period.”
An Advisor with impeccable credentials ($2 million fee based business, $300 million in assets) showed up for an interview in shorts. The meeting was set up at the last minute, and it was a summer Friday. The meeting was a positive one for both sides and the Branch Manager overlooked the shorts. Another meeting was set, two weeks in advance, with the head of Managed Accounts. The Advisor again showed up in shorts. He never got an offer.
Make no mistake: the recruiting world is still mostly about numbers. Being polite and well-mannered will not get you a deal if your production stinks. But being overly self-important, rude, condescending, and showing you to be miserable to work with could blow the deal of a lifetime.
Posted on:
September 24, 2009, 1:55 PM EST
Attention Good Advisors: I want to know YOUR story
Attention Good Advisors: I want to know your story.
The Investment News daily news bulletin hit my inbox on Tuesday with the following:
- Wells Fargo and Bank of New York Mellon sued over role in Medical Capital ‘scam’
- Finra bars ex-Morgan Stanley rep for allegedly bilking 97-year-old’s charity
- Wells Fargo exec fired for entertaining in Madoff victim’s home
- Widow files arbitration claim against Deutsche Bank, claiming risky fund was sold to her as safe
- Merrill Lynch settles Texas case for $12.7 million
Okay, so the financial crisis had very little to nothing to do with retail brokerage, or the wealth management industry. Big firms made big bets on mortgages and lost. That said, it is hard to ignore the consistent headlines of greed, malfeasance, and improprieties that we still read every day. There ARE a lot of Bad Advisors out there. And we all know that Bad News makes headlines, while Good News is just considered boring. The public at large thinks that everyone connected with Wall Street is greedy and responsible for the current recession.
Good Advisors out there: You need to make the effort to publicize the good that you do for people. It won’t necessarily hit the newspapers, but if you email me your good works, I will make the effort to make sure the story hits my blog sometime in the near future. I will not use your name, or your firm’s name, or any specifics that would enable anyone to identify you. But the public needs to see that the overwhelming majority of Advisors are Good Advisors, working very hard to keep their clients’ assets safe.
Have you preserved someone’s wealth? Protected a legacy? Helped put a client’s children and grandchildren through college/medical school/law school? I want to hear about it. And so do your beaten down colleagues.
My email is danny@leitnersarch.com.
Posted on:
September 18, 2009, 10:45 AM EST
By: Danny Sarch
Warning: Hubris Brings Down the Best of the Best
Roger Federer, perhaps the greatest tennis player of all time, lost last night to Juan Martin del Potro of Argentina. Now, I'm a big tennis fan, and a bigger tennis hack, and John McEnroe was not calling me up from the CBS broadcast booth asking about my opinion. That said, in my very humble opinion, hubris brought Federer down. How many times did he need to see del Potro's forehand come booming back to him for an outright winner before thinking that perhaps he should start hitting it to his opponent's backhand instead. It struck me that the great Federer, and I'm a huge fan, could not imagine that someone could hit any stroke harder and with more accuracy than he could. Del Potro deserved to win, but hubris brought Federer down.
Hubris brings down the best Advisors, the best Managers and the best firms too. With Advisors, sometimes I see some of the best forget the customer service that helped get them to the peak. They no longer call back their client's quickly enough, or they think, after a few winners, that they are smarter than the markets. Hubris retards their growth, because referrals go from a flood to a trickle. They become average without ever realizing why.
The best Branch Managers forget the service orientation that made them stars and focus exclusively on the next big ticket recruit. They make sure that they are managing “up” to their bosses instead of “down” to the people relying on them. Their offices become revolving doors with the best leaving and the good ones coming in wondering what happened to the responsive guy they bought into during the recruiting process.
Worst of all, hubris brings entire companies down. Advisors become numbers instead of names. Firms advertise how their “platform” is superior to their competitors while forgetting that their platform is only as good as the Advisors who are using it to provide solutions to their clients. Advisors want to feel connected to senior management who understand their problems, who have lived what they lived day to day, who provide solutions and not obstacles.
Hubris makes us all forget a basic truth: we all are entitled to nothing and that we must earn what we make each and every day.
Posted on:
September 15, 2009, 10:35 AM EST
By: Danny Sarch
On a Day of Mourning, We All Can Use a Laugh
Today is another anniversary of 9/11 and we all remember where we were on that horrible morning. I have put my traditional calls in to the two people that I spoke with that morning as the planes struck. That said, in the hope that I can bring a smile to many on a day when we all can use a chuckle, even as we remember, here are some snippets from Sarch’s Headhunter Files, to be published sometime in the distant future:
- The story of the Branch Manager who wondered why his career stalled after getting drunk on a party boat on the Hudson River and jumped overboard in front of his CEO.
- The tale of the Advisor who lost his job after surfing porn on the internet, contracting a virus on his PC, and then calling tech support who reported to management why the virus was contracted.
- The sordid anecdote about the Branch Manager who had office outings to the local strip club and wondered why certain Advisors in his branch would somehow feel excluded and complain.
- The yarn about the Branch Manager who took regular liaisons at a residential hotel with a certain sales assistant, subjecting himself to the blackmail of his own Advisors.
- The pathetic parable about the Advisor who kept his client instructions to sell out of a client’s substantial position in a currency in his desk on a Friday afternoon because he was convinced that the client was wrong and the position would improve over the weekend.
- And the too often repeated tale (same story, different cities, different firms) of the Branch Manager destroying his career because of an affair with a direct report.
Posted on:
September 11, 2009, 9:57 AM EST
By: Danny Sarch
Does Loyalty Have a Place on "Wall Street"?
I got an e-mail from a Branch Manager who read my blog on culture: “Sarch, you missed the boat on this one. Culture is created by the loyalty amongst the individuals within a firm to the brand and to each other. “ Mr. Branch Manager, thank you for writing, but I respectfully disagree.
I believe in loyalty amongst individuals. If Mr. Branch Manager (Mr. BM) truly goes to bat for his Advisors, then he deserves their loyalty. Without getting too “schmaltzy”, that’s a wonderful bond that ties people together all over corporate America. However, Mr. BM, as good as you may be, you were unable to do anything for your Advisors as your company’s stock tanked with the rest of the industry. In other words, in the face of bad decisions by individuals, by human beings, the “brand” had no loyalty to the employee/shareholders; your company’s stock got pummeled mercilessly.
When a Team Member works endless hours covering for an ailing colleague - - that’s loyalty. When an Advisor leaves and his true friends do not solicit his accounts, that’s loyalty too. However, in this day and age with Reductions in Force becoming a verb (“I was ‘riffed’ today”), the only true loyalty that a large organization should expect is that every Advisor, as the CEO of his or her business, has shareholders waiting for him or her at home. To the extent that the loyalty to THOSE shareholders is congruent with the company’s goals, then that is the loyalty that the company deserves or should even expect.
Loyalty still exists amongst true friends, or between a Manager and an Advisor, and it’s a great thing to see. But it won’t last forever and it will never supersede the individual’s instinct to act in his or her own best self-interest.
Posted on:
September 8, 2009, 2:27 PM EST
By: Danny Sarch
What is "culture" at a company anyway?
What is “Culture” at a Company Anyway?
Jordan Schultz, my Executive VP, and I were talking about the turmoil in the industry and what it meant to the Advisor who has stuck it out. If you are a 10 year veteran at one of the firms that was taken over or merged with a bigger institution, what did it mean to you to stay in your seat? What has really changed?
The obvious changes are the money “out” (you lost money in your company’s stock) and the money “in” (you recouped money with retention bonuses). But what about the elusive “cultures”? Firms brag about their cultures. Senior management at merged firms claim that the cultures are “a fit”. We know that this is salesmanship to some degree, but what are the real changes that the 10+ year Advisor sees on a day to day basis and are those changes “cultural”?
To me, the ties of tenure or “culture” that this Headhunter has to overcome when I am talking to a veteran Advisor about other opportunities are both emotional and functional. The emotional ties are best described as an Advisor’s “Work Family”. We all spend more time Monday through Friday with people at work than we do with our families. The extent that this gives an Advisor comfort vs. stress is also the extent in which this is an emotional handcuff, or a push out the door. If the people that give an Advisor comfort and a feeling of camaraderie disappear, then the cultural emotional tie is diminished.
The functional ties reflect the connections that an Advisor has within his own company that enable him or her to get things done within a giant bureaucracy. Many long-tenured Advisors have been working with the support staff of his or her company for decades. If the traders, specialists, and back-office personnel are no longer there to take a call and solve a problem (because of merger induced layoffs) then the Advisor might as well be at a new firm.
Bottom line: Can a culture be retained when so many of the “keepers of the flame” are no longer there?
Posted on:
August 31, 2009, 3:00 PM EST
By: Danny Sarch
A Conversation in Sarch's office. In 2016. (Part 1)
March 23, 2016
He arrived at my office, promptly at 10:00. The Brooks Brothers suit was perfectly pressed, the cuff links shined, the shoes were polished. In his hand was his latest resume and he was anxious to go over it with me.
“I used to be a Branch Manager for a Major Brokerage Firm.”
“What was that like?” I asked.
“It used to be amazing. I was a leader, a mentor, a sales manager, an idea guy. I hired, I recruited, I had my own little business that generated over $50 million in business in our best year. I earned over $1 million for six years in a row.”
“What happened?”
“Well, it changed, first in subtle ways, then it was like a runaway train ready to crash, and now…”
“What do you mean?”
“Compliance standards got tougher. Some of that was needed, but I was held responsible for every bit of correspondence that went out my door as well as for every word that everyone said. It was an impossible standard. Then, they whittled away at what I could get done by myself. I used to be able to hire assistants, staff people, anyone for the branch. I was my own profit center, so if I felt that a Broker needed help and it was worth it, I could hire someone. Then I couldn’t have a pizza party without approval from the higher ups. All they wanted me to do was recruit, but I had to pretend that I had any real control over what went on day to day.”
“Boy, that must have been frustrating.”
“You can’t imagine. Then, I had to manage multiple branches, in different locations, with less authority and for less and less money. All in the name of cost cutting. I survived most of the cuts. Finally, they realized that all they needed was a skilled operations team, and they did away with the whole job. Even the recruiting was just done by a centralized team. It was a good ride, but I never should have given up my book.”
Posted on:
August 19, 2009, 10:41 AM EST
By: Danny Sarch
Wirehouse Woes
So, with the joint venture of Morgan Stanley and Smith Barney legally complete, the retail brokerage world is down to four wirehouses. As a group, they face some extraordinary challenges:
How do you regain customer and employee loyalty after your brand has been tarnished?
Nobody I have spoken to at any level in this industry is a Monday morning quarterback claiming to have foreseen what this industry went through in 2008. All of the major firms went through a “weekend of death” whereby employees went home on Friday not sure whether they would have a place to go to work on Monday. The public wondered how it could trust an industry with its money when the industry lost billions of billions of its own capital in bad investments. Advisors and their Managers, forced to take substantial portions of their pay in stock over many years, had their own net worths crushed in the debacle. Advisors played musical chairs (I always loved that game!) as a way just to recoup their losses with up front money. Advisors and their clients will never trust or be loyal to their firms in the same way again.
How do you manage so many Advisors without crushing the entrepreneurial spirit that makes the best of them so special?
As business has slowed, you have enormous cost cutting measures. Every employee in the industry is being asked to do more, for less, with fewer resources. Layoffs are everywhere. In addition, you are part of highly regulated, compliance focused industry. Because of the mergers, there are fewer staff people responsible for supporting the largest salesforces that the industry has ever seen. This is not exactly a formula for entrepreneurialism. Can you keep the Advisors that pay the bills growing and happy, even as you support them less on a “staff per broker” basis?
... Read full story Posted on:
August 13, 2009, 2:29 PM EST
By: Danny Sarch
Note to Compensation Czar: The Best Performers ALWAYS Have Choices
On June 10, the Obama Administration appointed Kenneth Feinberg “Compensation Czar.” According to today's The New York Times, Mr. Feinberg is about to review how compensation should be structured for senior executives, or high earning executives, at the Financial Services firms that received federal bailout funds. At issue, apparently, are the guaranteed bonuses that certain executives are scheduled to receive at some point in the future, based upon the agreements that they reached when they joined their new firm.
These TARP recipients are subject to the government's scrutiny because they spent humongous amounts of taxpayer money to keep these firms from going under. I get that, and I'm a taxpayer too. But I'm a headhunter too, and the headhunter in me KNOWS that the more you talk about government approval of compensation, the more that top revenue producers (i.e. the ones who get these big bonuses) will NOT want to work for these companies. They will go to work for the few that repaid TARP, or for the smaller, or foreign based banks, all of whom are not subject to the same Government oversight.
By definition, weaker companies MUST pay MORE to “A” players to get them to play for their “B” team. Mr. Feinberg's efforts to assuage taxpayer anger will only serve to drive the best performers, who are also the highest paid, right into the arms of their stronger competitors. The Banks that are supposedly “too big to fail” will continue to struggle to retain and attract talent. Their downward spiral will accelerate and taxpayers will lose their initial investment and be on the hook for a lot more.
As long as the marketplace defines compensation, we cannot artificially impose regulation for a select few and expect them to compete effectively with companies that are unfettered.
Posted on:
August 10, 2009, 1:58 PM EST
By: Danny Sarch
Krawcheck in; Sontag Out
Dan Sontag has been at Merrill Lynch since 1978. He started as a broker, ran offices, divisions and then the entire sales force. I talk to dozens of Merrill Advisors a week. Though it's safe to say that no executive is universally admired, Mr. Sontag has the respect of 99% of his sales force and was liked and appreciated by the overwhelming majority of them. Having him in charge of the legacy Merrill Lynch sales force under Bank of America was a tangible connection to the Merrill culture. It showed this cynical headhunter that senior management at Bank of America appreciated what Merrill was as it tried to integrate two very different companies. Time in Wealth Management: 31 years. Time with Merrill Lynch: 31 years.
Sallie Krawcheck is a brilliant, charismatic executive. Advisers tell me that she was an effective one-on-one recruiter and listener. She was also consistently in front of clients, either in groups or one on one, such that her sales force often requested her as a speaker. Her time at Citicorp, however, is not without controversy. She was hired by Sandy Weill in the wake of the research scandal based on her reputation as an ethical, accurate, insightful analyst at Sanford Bernstein. With no prior wealth management experience, in the field or in management, she was made the head of Smith Barney's Wealth Management business. After two years, she was promoted to be CFO of Citi, (that's not the point of this blog, though thorough examination of her time as CFO, to my knowledge, has not been covered sufficiently anywhere), and then went back to run Smith Barney, where she spent another two years. So, total time in Wealth Management: four years. Time with Merrill Lynch: 0
Many Merrill Advisors somehow thought that the Bank of America takeover was benign; they would leave Merrill alone out of appreciation or respect for the culture of achievement and professionalism that were Merrill Lynch hallmarks.
Think again.
Posted on:
August 4, 2009, 9:35 AM EST
By: Danny Sarch
Contract Renege? Say it Ain't so!
Andrew Hall is a Trader at Phibro, a division of Citicorp. Apparently, he is an extraordinarily successful trader who is reportedly owed $100 million for his performance.
I have yet to see anything written that says that this is some mistake or loophole in his contract. I have also yet to see anything written about how much in profits he generated for his company in order for this $100 million to be paid. Presumably, it is some very large multiple of this bonus. In other words, he EARNED this $100 million.
Yes, I know that Citicorp received taxpayer money to survive the financial crisis. However, are we not a country of laws? Aren't written contracts the basis for a strong, capitalistic society? In capitalism, either as a vendor, or as an employee, a contract is written such that if the employee, or vendor, produces X, then that employee or vendor gets paid Y.
The fact that there is even discussion of not honoring Mr. Hall's contract is outrageous. Yes, it's a lot of money. But he earned it and it's in his contract. If you don't want to pay this much, then don't put it in the next contract. However, since it is likely that Mr. Hall earned some multiple of his compensation for his company, it is also likely that someone else will then agree to pay him this much for the same performance, if not more. Then, the shareholders of Citicorp (all of us, since it Is a taxpayer supported company) are the losers, because an extraordinarily profitable employee will be driven away.
If the best performers are afraid to work for TARP supported companies, how can these TARP supported companies thrive, or even survive? Readers out there, from the janitor to CEO, would you like it if your employer reneged on your legally binding employment agreement?
Posted on:
August 3, 2009, 3:35 PM EST
Fire, reload, Re-Hire
Wow, I read this morning that Merrill Lynch has already started aggressively hiring trainee Financial Advisors. Just this past spring, my inbox was flooded with the resumes of Merrill Lynch trainees, two years in the business and less, who were fired because Merrill was no longer in the “training of new Financial Advisors” business. Did one quarter of wonderful results totally change their thinking?
There are only four ways to grow a retail brokerage sales force: “same store” sales growth (i.e. increasing the productivity of the existing Advisors), acquisition, recruiting (my personal favorite) and training. Pick your poison, because no way is a sure thing or without its own peril. I don't recall how many Advisors were laid off by Merrill earlier this year, but those poor folks were thrown into a horrific job market. I wonder how many of them will be offered their jobs back. How many will have no other choice but to take it back, uncertainty and all, and how many will tell Merrill, “No, thank you. Screw me once, shame on you; screw me twice, shame on me.”
This is just the latest example of an industry that hires way too much when things are good and then fires way too many when things are bad. Perhaps they should consider their strategies and manpower needs in the same way that they advise their clients. That is, take a long term approach and ignore short term blips because you can't time the market.
Posted on:
July 30, 2009, 3:24 PM EST
By: Danny Sarch
Whatever happened to confidentiality?
I see more and more articles appearing in the press about Big Meetings. That is, Very Important CEO is having meetings with Very Important Candidates about Very Important Jobs. The problem is that the Very Important Job is very often occupied by a Very Important Executive. Some questions: Has the Executive been told that there is a Search out there to replace him/her?
Believe it or not, sometimes people meet just because they happen to know each other, or because they want to network, or because someone introduced them and they are meeting out of courtesy. There was a Page 6 article in the NY Post last week about a Venture Capitalist dude meeting with Bob McCann, the ex-head of Retail at Merrill Lynch, and Alexandra Lebenthal, the current head of Alexandra and James. The speculation was that these folks were plotting a takeover of UBS Americas, the legacy PaineWebber http://www.nypost.com/seven/07222009/gossip/pagesix/eyes_on_wall_st__powwow_180676.htm
The article mentions that Bob McCann is on the “short list” to take over UBS Wealth Management.
Is there really a search? I don't know. But when the best Headhunters conduct searches, (Not just me, there are other good ones!)they do not end up on Page 6, or in the Financial Times, or in FundFire. Whatever happened to confidentiality? Just because UBS has had issues, because McCann and Sally Krawcheck are available, does that mean that there's a search to replace Marten Hoekstra? Sometimes people just meet and there's not a job at stake or a firm in play. Call me naïve, call me old-fashioned, but it bothers me that “meetings” are assumed to be “interviews” and that this is news when it may or may not be part of a specific search.
Posted on:
July 28, 2009, 2:01 PM EST
By: Danny Sarch
Myths, lies and recruiting truisms
I spend my business days talking to financial advisers and their bosses. I talk with them at firms big and small, in all parts of the country. It's fascinating to me how many myths and outright lies I have to debunk every single day. Rather than continue to pull my hair out (and there's very little left) doing this on a phone-call-by-phone-call basis, here is Sarch's attempt to debunk and demystify the worst of these all at once.
Let's start with the big one: Upfront deals. I know at least three things for certain: Jack Bauer never has enough time, high school boys always lie about their sexual prowess and exploits, and financial advisers lie about the offers that they receive from the competition.
The roots of this are clearly in the macho culture prevalent in the retail brokerage industry, where bragging about compensation is a way to impress one's peers and inflate one's ego. The facts, however, are that deals have gone steadily down since the first quarter. More confusion is created because all deals have different terms, different backend requirements, and are skewed towards the bigger folks.
When I talk to advisers, everyone seems to expect the “best deal out there.” But “A” deals are only available to A+ advisers ($1 million or more in income, $100 million plus in assets, one firm, no compliance problems, fee-based business). I wish that there was an NYSE listing where advisers could check their “value” daily. There is no listing, obviously, but make no mistake that deals change constantly.
Hiring managers are often guilty of the next big lie: Moving is easy. It ain't. If it were, why would firms pay upfront money to induce you to move? Related lie: None of the assets transfer. That's what the “losing” firm's brokers and managers will spin. When the Branch Manager at the losing firm stands up at his sales meeting a week after Joe's departure and brags that “all of Joe's assets are still here,” and warns that “those of you who are thinking of leaving should consider this instructive,” he's telling the truth. Then again, it's only been a week.
Ask him about Joe a month later and I promise you the story will be different. Again, if nobody is able to transfer the... Read full story
Posted on:
July 23, 2009, 2:09 PM EST
By: Danny Sarch
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