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Bailed-Out Insurance Giant AIG to Hand Out Retention Bonuses Disguised as Loans to 6,000 Reps, Advisors

The battered insurer’s retail securities business is preparing to hand out retention bonuses to its 6,000 reps and investment advisors. The retention bonuses will equal between 5 and 10 percent of brokers’ previous year’s fees or commissions.

September 3, 2009
Related Topics: Miscellaneous Legal Issues, Compensation Design and Communication, Ethics, Latest News
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On the heels of new American International Group Inc. chief executive Robert Benmosche’s backpedaling from incendiary comments he made about New York Attorney General Andrew Cuomo, the AIG Advisor Group—the battered insurer’s retail securities business—is preparing to hand out retention bonuses to its 6,000 reps and investment advisors.

Dubbed “business-building loans,” the retention bonuses will equal between 5 and 10 percent of brokers’ previous year’s fees or commissions, known as a broker’s “trailing 12” in the industry.

According to sources inside and outside AIG, the percentage a broker receives depends on his or her annual production, with brokers producing less than $300,000 in fees and commissions likely getting nothing.

The common wisdom in the retail securities business is that such bonuses are necessary to keep advisors in their seats, particularly after one broker-dealer is sold.

The three broker-dealers that make up the AIG Advisor Group—Royal Alliance Associates Inc., FSC Securities Corp. and SagePoint Financial Inc.—had been on the block since October as part of AIG’s widespread sale of assets to raise capital to pay back part of the federal government’s $85 billion bailout.

After months of sometimes agonizing waiting for brokers, Benmosche scrapped plans for the sale soon after taking over as CEO of AIG last month.

In some of his first meetings with AIG employees in August, he also revealed his feelings about Cuomo, who subpoenaed AIG in March during a political and media uproar over $165 million in retention bonuses.

According to Bloomberg, Benmosche told AIG employees in Houston on August 11 that Cuomo was “unbelievably wrong” about the bonuses.

“He doesn’t deserve to be in government, and he surely shouldn’t be the attorney general of the state of New York,” Benmosche said.

AIG said Monday, August 31, that Benmosche “regrets his comments regarding Mr. Cuomo.”

The reps and advisors with the broker-dealers of the AIG Advisor Group, however, have one clear difference from the employees Cuomo targeted as part of his bonus inquiry, industry observers noted. The advisors are independent contractors, not employees, and take great pride in that status, which allows them to move with reasonable ease to other broker-dealers.

When asked to give specific details of the retention bonus package to AIG Advisor Group reps, that unit’s CEO, Larry Roth, did not respond directly.

Instead, he wrote in an e-mail: “All of our broker-dealers remain highly committed to their financial advisors and will continue to provide them with the support they need to grow their practices. We help advisers succeed by investing in them in many ways, including practice-management programs, back-office support and technology.”

The issue of brokers receiving bonuses has recently drawn the strong interest of securities regulators.

On Monday, SEC Chairman Mary Schapiro warned broker-dealer CEOs that offering large upfront bonuses to potential recruits comes with the responsibility of closely monitoring reps and advisors’ sales practices.

“Certain forms of potential compensation may carry with them enhanced risks to customers,” Schapiro wrote in an open letter to CEOs that was posted on the SEC Web site.

“Some types of enhanced compensation practices may lead registered representatives to believe that they must sell securities at a sufficiently high level to justify special arrangements that they have been given.”


Filed by Bruce Kelly of InvestmentNews, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.

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