LIKE SUNAMERICA: JACKSON NAT’L FIGHTING FIRE WITH HIRES

Two SunAmerica alums are leading the assault on their former employer for Jackson National Life Insurance Co.

Borrowing from SunAmerica Inc.’s playbook and behaving a lot like big Wall Street brokerages, the insurer is waving huge signing bonuses in front of financial advisers at independent brokerages, including SunAmerica’s.

Bent on building a new brokerage business from scratch, Jackson chief Robert Saltzman, who left SunAmerica in 1994, is recruiting top brokers with upfront payments of 20% to 30% of the prior year’s gross commissions and fees.

Clifford Jack, who left SunAmerica in 1995, is president of Jackson National’s 15-month-old National Planning Corp., an independent brokerage venture.

The Santa Monica, Calif., unit is the centerpiece of Mr. Saltzman’s ambitious plan to build a financial services distribution network to rival SunAmerica, which was acquired last January by American International Group Inc.

“NPC is out there and they have an open checkbook,” says Bessie Savery, vice president of business development and head recruiter for Torrance, Calif.-based Financial Network Investment Corp., which has 2,600 reps.

But some observers question how long Jackson can afford to offer such bonuses.

National Planning currently has 700 reps, double the number signed up through last December. The firm is adding an average of 35 brokers monthly, plucking from competitors on the East and West coasts.

Mr. Jack, president of National Planning, confirms the unit’s offering upfront payments, but declines to discuss details.

“We do advance commissions in some cases to qualified reps to compensate them for down time between jobs,” says Mr. Jack. “Every deal is different and has a different payback period.”

Brokerage industry executives say National Planning’s 20% to 30% upfront advances are treated as five- to seven-year forgivable loans if the broker meets certain sales targets.

Such recruiting tools have been common among national brokerages for years, while independent broker-dealers, which have higher payouts, have resisted such inducements because they erode profits.

Independent brokerage reps keep an average 85% to 90% of their gross fees and commissions, vs. less than 35% for wirehouse representatives, says Bill Willis, head of marketing at Los Angeles-based Associated Securities Corp., a 250-rep affiliate of insurer Pacific Mutual Holding Co. “When you add in operating expenses, you can’t support the economics behind the transaction,” he says.

Jackson National launched National Planning four months after it paid $11 million in March 1998 for SII Investments Inc., an Appleton, Wis., independent broker-dealer with more than 500 reps. After the deal, Jackson decided to build rather than buy critical mass.

As president and CEO of SunAmerica Life from 1987 through 1993, Mr. Saltzman was a key early player in the Los Angeles company’s buying independent brokerages before he left to run Lansing, Mich.-based Jackson National, owned by British insurer Prudential PLC.

Indeed, National Planning’s use of upfront payments to recruit brokers has also been common at SunAmerica, says Ms. Savery, who left the company’s Advantage Capital Corp. brokerage affiliate in May to join Financial Network Investment Corp., which is owned by Aetna Inc.

According to Ms. Savery, Advantage Capital began offering upfront payments to new brokers shortly after SunAmerica bought the Houston brokerage from buyout firm Clayton Dubilier & Rice Inc. in 1995.

In an ironic twist, brokerage industry executives say National Planning has been most successful in raiding advisers from SunAmerica brokerage affiliates.

Gary Krat, chairman and CEO of SunAmerica’s wholly owned brokerage network, didn’t return calls seeking comment.

Executives at Associated Securities and Financial Network confirm they have lost reps to Mr. Jack.

Rival independent broker-dealers question both the economics of the upfront payments and the long-term implications for holding on to such brokers.

“National Planning Corp. is very good competition for other firms that are paying upfront money to get brokers to sell their product,” says Todd Robinson, CEO of LPL Financial Services Inc. in Boston, which has more than 3,000 adviser reps. “But over time, those models tend to self destruct,” he warns. “The forgivable loan time runs out and brokers go and take money from a new place.”

National Planning’s Mr. Jack says his venture’s Internet-based tracking of customer accounts, executing orders and other systems gives the brokerage an advantage.

He concedes that National Planning isn’t likely to turn a profit soon. “We’re still in the growth stage and when you are growing, if you are truly investing back in the business, then you are likely to be less profitable than if you were maintaining your overall business,” he says.

“It’s highly unlikely that an independent broker-dealer would ever be able to achieve a level of profit similar to our parent. We hope over time that we will be a contributor to the bottom line.”