IRVINE, Calif. — Wachovia Securities LLC may face challenges in retaining all the brokers it wants to, in the wake of its announced merger with A.G. Edwards Inc. of St. Louis.
Both firms announced retention deals June 15, but some brokers say they are disappointed with the offers.
The package for reps at Richmond, Va.-based Wachovia Securities “is going to stimulate movement,” said a top-producing Wachovia broker in Northern California, who said the deal isn’t rich enough given the effect of the merger on Wachovia brokers. The rep asked not to be identified.
Reps won’t immediately jump ship, “but over time, there will be people leaving,” said a veteran Wachovia rep in the Southwest, who also asked not to be identified. “A lot [of brokers] here wanted to get away from a big firm.”
The offer to Wachovia brokers is “problematic,” said recruiter Michael King, owner of Michael King Associates Inc. in New York. They can get “six times the amount” from competing firms, he said.
To be sure, other reps liked the retention packages.
“There’s something for just about everybody,” said a Wachovia rep in the Northwest, who asked not to be identified. Brokers always complain about not getting enough money, he said.
But Danny Sarch, recruiter at Leitner Sarch Consultants Ltd. in White Plains, N.Y., said that the retention deal for Wachovia brokers, a contribution to their defined compensation plan of 10% to 35% of annual production, isn’t enough to keep them in their seats.
He thinks that Wachovia could suffer more attrition than the A.G. Edwards side.
Wachovia aggressively went after former brokers of Advest Group Inc. of Hartford, Conn., Baltimore-based Legg Mason Inc. and Piper Jaffray Cos. Inc. in Minneapolis after those firms were acquired, respectively, by Merrill Lynch & Co. Inc.,
Citigroup Inc. and
UBS Financial Services Inc., all of New York, Mr. Sarch said.
“So there’s an element of, [those competitors] can’t wait to get back” at Wachovia, he said.
The Southwest Wachovia rep heard that several of the wirehouses had bumped up their recruitment deals as a result of the merger, to about 150% upfront for top producers and another 100% contingent on transferring 80% of assets. Recruiters say that quality producers may receive something closer to 200% in a combination of upfront loan and back-end payouts.
Wachovia understands the risk of losing reps, Mr. Sarch said, and “to their credit, the firm is putting the integration [of A.G. Edwards] way out to make sure they get it right.”
A decade hence
Meanwhile, A.G. Edwards reps were unpleasantly surprised that part of their two-part retention package doesn’t vest for 10 years.
“Oh, my God,” said one Texas-based A.G. Edwards broker, who asked not to be identified, looking at that part of the deal.
“Screw what you get in 10 years,” said another A.G. Edwards rep, based in the Midwest, who requested anonymity. What counts is the amount brokers get upfront, he said. For top producers like himself, 70% of production comes in the form of a six-year upfront note, but the remaining 30% comes a decade later.
Overall, the upfront piece of the A.G. Edwards package ranges from 20% to 70% of production, and the back end adds 20% to 30%. Reps can choose to take part or all of the upfront piece in cash, paid in equal installments over six years. No contract is required for the all-cash option.
“Everybody [at A.G. Edwards] is now in an exploratory stage,” the Midwest rep said.
Mr. King said he doesn’t expect an exodus from A.G. Edwards, but he said that some bigger producers at the firm are considering alternatives.
It is too soon to gauge the effect, but A.G. Edwards brokers are in a good position to leave if they want to, the Midwest rep said.
“But others seemed happy with the package. “It’s a nice thing, especially for upper-level” brokers, said an A.G. Edwards rep in Southern California, who requested anonymity. “We were here for life anyway,” he said.
The Texas-based A.G. Edwards rep also said he plans to stay put but anticipates picking up accounts of departing colleagues.
“We are asking financial consultants to take some time, ask questions and give the flexible options offered in the [A.G. Edwards] package some real consideration,” said Teresa Dougherty, spokeswoman at Wachovia Securities. Brokers will not have to sign non-compete agreements to receive their awards, she said.
A.G. Edwards reps must pick which payout option they want by Aug. 31.
“I’d be surprised if more than 50% of the guys at A.G. Edwards are here after a year or two,” said a Wachovia broker based in Southern California, who has been in touch with brokers at A.G. Edwards. The broker asked not to be identified.
Wachovia has played up its record of retaining reps from Prudential Securities Inc., but this broker, who came from the New York wirehouse, said that Pru reps were not a happy bunch and were relieved to go to Wachovia.
By contrast, A.G. Edwards brokers are perfectly content, he said. “I think there will be a lot more movement [out of A.G. Edwards] than they saw out of Prudential. The dynamics are not the same.”
Mr. King said that A.G. Edwards reps who produce around $400,000 or more are marketable, because they generally have a low return on assets. A.G. Edwards brokers have an average production of $522,000, versus $688,000 at Wachovia, the firms said.
