For certain recruiters, Richmond, Virginia-based Wachovia wants to increase the commission it pays to 10 percent of brokers’ previous years’ fees and commissions, almost doubling the industry norm of a 6 percent commission.
The agreement is surprising and almost unheard of, recruiters and brokerage executives say.
Of course, there’s a catch to get that extra commission. Recruiters have to sign a contract that prohibits them from moving St. Louis-based A.G. Edwards’ reps to other firms. The 10 percent commission would be for future recruiter business with Wachovia and would max out at $75,000.
Wachovia began offering recruiters the deal last month, and one recruiter who turned it down says he sees the offer as having two potential meanings.
“The increase in fees for recruiters confirms the war for talent,” says Danny Sarch, a recruiter in White Plains, New York. “It makes sense that firms have to pay more to get recruiters to pay attention to them.”
But the offer could also “speak to an element of fear that A.G. Edwards guys are at risk.”
Wachovia declined to comment on the deal it proposed to recruiters, but said it was “pleased” with its retention levels of Edwards’ reps.
“The attrition rate is very much in line with where it was at this point in the Prudential Securities merger,” Tony Mattera, a spokesman for Wachovia, wrote in an e-mail.
The firm merged with Prudential Securities of New York in 2003.
Among higher-producing brokers, the attrition rate is “slightly better than it was at the comparable point in the Prudential deal, which ended up being about 3 percent,” he says.
The move is “smart business on Wachovia’s part,” says Mindy Diamond, president of Diamond Consultants, an executive search firm in Chester, New Jersey, that works with financial advisors and reps.
Before the deal was offered, recruiting by Wachovia branch managers could be somewhat haphazard because the branch manager determined the recruiter’s commission, she says.
Diamond declined to say whether she signed the agreement with Wachovia.
At the end of May, Wachovia Corp. of Charlotte, North Carolina., the parent of Wachovia Securities, said that it was buying A.G. Edwards for $6.8 billion. The deal closed October 1.
Wachovia, which has 10,700 reps and advisors across a variety of platforms, has been built on numerous acquisitions. At the time the merger was announced, A.G. Edwards had about 6,600 reps and advisors.
Somewhere between 300 and 400 of those reps have moved to other firms, says one industry recruiter, who asked not to be identified.
For some, Wachovia’s acquisition of A.G. Edwards has turned quite contentious.
A common criticism of the deal has been that the two cultures are not likely to mix, with A.G. Edwards being an independent regional firm run by its family owners for most of its history and Wachovia a national behemoth owned by a bank.
Ben Edwards III, the former CEO who retired in 2001, caused a stir in June at Edwards’ shareholder meeting when he read a speech criticizing the deal.
In October, A.G. Edwards filed lawsuits against at least 10 of its former brokers and employees in an effort to stop the drain of client assets. Bitter fights erupted in California over Edwards’ loss of reps and employees to Stifel Nicolaus & Co., also of St. Louis.
And there have been some big winners in the race to grab Edwards’ reps, according to industry sources. For example, Merrill Lynch & Co. has had the most success, so far bringing in almost 100 reps and advisors, one industry source said.
Merrill Lynch declined to confirm the number of reps and advisors it has recruited so far from Edwards. The New York company is making “an aggressive effort to attract select wealth management employees from A.G. Edwards,” Erik Hendrickson, a Merrill Lynch spokesman, wrote in an e-mail. “It is a firm for which we have great respect, and a talent pool whom we believe comes from a background and culture similar to that of ours here at Merrill Lynch.”
Another big winner is LPL Financial Services of San Diego and Boston, which has recruited about 80 advisors from A.G. Edwards but could bring in as many as 100 by the end of the year, another industry source says.
Some in the industry are surprised at how aggressive Merrill Lynch has been at pursuing Edwards’ reps. Recruiters and brokerage executives view Merrill’s move as payback for Wachovia Securities’ pursuit of brokers formerly with the Advest Group of Hartford, Connecticut, which Merrill acquired in 2005.
Up to 20 percent of the firm’s original 515 reps left before the deal closed that December. Many of those were bigger producers.
Merrill’s pursuit of Edwards’ reps has been unusual, industry sources say.
For example, Merrill Lynch recently offered a $300,000-producing broker an upfront bonus of 170 percent of his previous year’s fees and commissions, according to one head of recruiting at a rival brokerage firm, who asked not to be identified. A deal at that level for a lower-end producer at a wirehouse is “almost unheard of,” the executive says.
Diamond doesn’t agree with the assessment that Merrill is looking for payback against Wachovia regarding what happened with Advest.
“Every firm was hot on the trail of those guys,” she says.
The reality of the brokerage business dictates aggressive moves by many firms, Diamond says.
“When a broker is recruited away, there is extra motivation for that firm to go get a top team” from that rival broker-dealer, she says.