Update #3 - May 26, 2010 at top
Update #2 October 19, 2009 - near the end.
But Registered Rep magazine May 2010 reports that bonuses don't keep all brokers tied to the mothership.
See Story here http://registeredrep.com/newsletters/wealthmanagement/bonuses_no_balm_for_some_breakaway_minded_brokers_0526/?cid=nl_wm
Update #1 Feb. 22, 2009 - begins here:
Investment News reported Morgan Stanley, Citi executives in charge of bringing together brokers from the two firms stated "In a nod to today's touchy political environment regarding executive compensation, financial advisers at the firm borne out of a joint venture between Morgan Stanley and Smith Barney will not receive retention bonuses, instead they will receive "retention" awards in cash.
An exective stated "please do not call it a bonus...It is not a bonus; it is an award, and it recognizes the importance of keeping our team in place as we go through this integration."
Hmmmmmm...does it smell like cash, does it feel like cash in the wallet, does it show up in a bank account as cash, must be, in the latest compensation parlance from our friends on Wall Street not Cash, rather they are just "AWARDs".
REALLY? Are these awards - shareholder approved? board approved? Love to see the minutes and votes. Since we are in the era of buying stocks at among the LOWest price opportunity of never-been-seen-before-proportions why not, what is the downside of paying in stock rather than in cash? Why not, eating a little home cookin' would appear to be among the best way to "keep the team in place"
And the best way to conserve US TAXPAYERS DOLLARS bestowed upon your doorsteps.
Begin original post:
A THANK YOU NOTE FROM YOUR OH SO FRIENDLY NEIGHBORHOOD STOCK BROKER.
"Thank you, thank you, muchas gracias, happy new year of the ox, again thank you so much US Taxpayers for your continued confidence and helping me to be a lucky broker at Merrill Lynch, Smith Barney and Morgan Stanley; thanks to your generosity I and my colleagues will be splitting over $5 Billion in cash so that I may continue to service your account at my new firm or new combined powerhouse."
Wall St brokerage firms will soon hand out "retention" bonuses called forgivable loans. Stock brokers will soon receive over $5 Billion as inducements to stay put; that's correct, inducements to keep their jobs; really? what other job holder gets such treatment? This writer has some experience when it comes to such deals.
Let's get straight away to the lucky ones - Bank of America (NYSE:BAC), facetiously, just in case, the colors of the computer workstations are not exactly what the brokers had hoped for, will give out over $3 Billion IN CASH to its newly acquired herd of Merrill Lynch brokers. And, facetiously, due to the rather lengthy new name of the newly combined Morgan Stanley Smith Barney sales force will receive payouts over $2 Billion IN CASH, reports say; after all having to answer the telephones with that new moniker does actually take a little more time away from watching and managing customers' accounts; perhaps the bonuses may have the soothing effect that only coin in the pocket delivers; but only the brokers get the bonuses; the sales assistants get to answer the phones at the same old salaries.
These loans are forgiven, correct forgiven.
Annually, according to reports, over the next seven years. Each year 1/7 of the loan amount and interest thereon is reported as W2 income to the broker; that means the broker pays income tax on the amounts reported on the W-2.
If a broker leaves before the end of the 7 year period, the broker must pay back the amount of the loan back to the brokerage firm, less previously forgiven amounts.
When it comes to disclosures to customers.
Brokerage firms are generally required to inform customers of any additional compensation paid to its brokers. This expert wonders how, especially in times like these, brokerage firms will spin and communicate or update ADV brochures, part II's of this mega - compensation under principles of fair dealing pursuant to NYSE, FINRA and or SEC Investment Advisory rules and regulations. We may be waiting for some time before that happens; in the mean time don't forget to keep an eye out for that "thank you" note in your mailbox.
Updated October 19, 2009 with a recent excerpted quote from Investment News by Mary Schapiro, now chair at the SEC (formerly chair of NASD / FINRA).
In regard to recruited brokers who upon signing on are given "FORGIVABLE loans"
(I maintain both FORGIVABLE loans and RETENTION AWARDS OR RETENTION BONUSES should be disclosed to customers - what's to hide?)
In a short open letter to b/d CEOs, SEC Chairman Mary Schapiro “reminded” executives of their supervisory responsibilities. She said her friendly reminder comes in response to press reports about firms offering “large up-front bonuses and enhanced commissions for sales of investment products.” Recruiters disagreed about what kind of impact the warning might have—one recruiter said firms might change the way they structure their recruiting deals, but others said that firms would probably just review their deals and put more compliance controls in place. The letter comes as b/ds, especially wirehouse firms, continue to offer huge recruiting bonuses to top producing reps at rival firms. The recruiting deals at the four wirehouses (UBS, Morgan Stanley Smith Barney, Merrill Lynch and Wells Fargo Advisors) range between 200 and 250 percent of trailing 12-month production, and often include components that reward advisors for bringing over certain percentages of assets, and meeting pre-established production targets. For example, an advisor might be awarded 20 percent of the total deal when he begins generating 100 percent of his trailing 12 months production.
Wonder if Ms Schapiro read ever the SEC Tully report from 1995 (not a typo).
Warren Buffett served on the commission with Mr Tully.
See text here http://www.sec.gov/news/studies/bkrcomp.txt
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