Bill may drive reps from wirehouses, expert says

Legislation approved Wednesday by the House of Representatives that would limit bonuses at government-aided firms may lead more wirehouse brokers to become independent investment advisers, said an attorney who specializes in helping breakaway brokers start their own advisory firms. By a vote of 247-171 the House Wednesday approved the Grayson-Himes Pay for Performance Act, which would tie pay to performance at companies that have received direct capital investments under the Troubled Asset Relief Program. The bill repeals a provision of the American Recovery and Reinvestment Act that exempts bonuses due under employment contracts entered into or before Feb. 11. Regardless of when a company entered into a compensation payment arrangement, recipients who have yet to repay a direct capital investment under TARP or the Housing and Economic Recovery Act, which covers Fannie Mae of Washington, Freddie Mac of McLean, Va., or the Federal Home Loans Banks, would be prohibited from paying executives or employees any compensation that is “unreasonable or excessive” as defined by the Treasury secretary. “If I were a wirehouse I’d be concerned about that,” said Patrick Burns, an attorney who operates under his own name in Beverly Hills, Calif. “Nobody knows what it means yet,” he said. “”Maybe it’s tied to the company’s profitability overall, or it could be individual-based. Or it could be tied to a combination of the two. Nobody really knows yet,” he said. It would include registered representatives who earn bonuses, he said. He predicted that brokers could leave brokerage firms if the firms are unable to paid agreed-upon bonuses. “If their agreements run into trouble, there would be a lot more people looking to leave,” Mr. Burns said. The bill also would require financial institutions that are TARP recipients to submit an annual report to the Treasury secretary detailing how many executives and employees received or will receive total compensation above specified dollar amounts. “Taxpayers should not bankroll executives whose ridiculous gambles brought America’s financial system to the brink of collapse,” Rep. Alan Grayson, D-Fla., said in a statement issued after the House approved the legislation. “The taxpayers now have an ownership stake in these companies. And owners of companies set salaries for their employees,” he said.