* Branch managers get more calls from brokers -UBS executive
* FINRA rule would require signing bonus disclosures
* Regulatory group hasn't yet sent rule to SEC for approval
By Jed Horowitz
NEW YORK, Oct 23 With the clock ticking on an
impending rule that would require stockbrokers to disclose their
signing bonuses to clients, some are weighing a move before the
potentially embarrassing regulation takes effect.
Approved in late September by the board of the Financial
Industry Regulatory Authority, or FINRA, the rule would require
brokers to disclose signing bonuses, loans, accelerated payouts,
transition assistance and deferred payments of $100,000 or more
to customers whom they ask to move with them.
FINRA has not yet sent a draft of the rule to the Securities
and Exchange Commission for approval, a spokeswoman at the
industry-funded regulator said Tuesday, but brokers are still
nervous, according to some headhunters and firm managers.
"Financial advisers at the competition are calling in to our
(branch) managers more, and that's probably consistent around
the Street," said Paul Santucci, head of national sales for
about 7,000 financial advisers at UBS AG's UBS Wealth
Management Americas division.
Hiring, in general, has accelerated over the last several
weeks after a relatively sluggish year, Santucci and outside
recruiters said, reflecting, in part, a seasonal surge in the
weeks before Thanksgiving.
Still, the FINRA proposal, which most big firms hope will
rein in expensive recruiting deals for top brokers, appears to
be having an effect.
"Entire teams are moving around right now at an accelerated
pace," said Mickey Wasserman, a recruiter in southern
Wasserman recruited a group to a major firm just weeks after
FINRA announced its proposed rule on Sept. 19.
"One month is the fastest I've seen anybody move," he said,
adding that the firm would not let him disclose details.
Ron Edde, another California-based recruiter, said he had no
qualms about employing the impending rule as a prod to move
brokers who have been on the fence about a move.
"It's a catalyst" that comes in second to the cash
incentives that are typically the main motivator, Edde said.
Most brokers aren't concerned yet about the proposed FINRA
rule, other headhunters said, as the details about what needs to
be disclosed are still to be revealed. Brokers with good client
relationships also wouldn't need to worry about the rule, they
"I speak to brokers all day long and none has asked me about
the FINRA rule," said Rich Schwarzkopf, a recruiter in New York.
"If they did, I'd tell them to say, 'They paid me $1 million
because I'm one of the best in the business.'"
"Huge signing bonuses can make them look like rock stars in
the eyes of some clients," agreed Mark Elzweig, a New York
The FINRA proposal has, nevertheless, been controversial.
Some headhunters and brokers say it's an invasion of privacy
and favors big firms that are not required to disclose retention
bonuses paid to keep top brokers from bolting.
Regulators have warned that lucrative recruiting deals may
encourage excessive trading behavior and sales abuses by brokers
keen to prove their worth.
When announcing the proposed rule, FINRA said clients need
the data to make "fully informed decisions" about the costs of
following a broker to a new firm. Many brokerage firms charge
clients for closing or transferring accounts, and some
investment options may not be available for clients at their
broker's new firm.
The rule will require firms to disclose big pay increases to
brokers in their first year of employment to help FINRA
examiners zero in on potential abuses.
In the tussle for recruiting top talent in recent years,
brokers have been promised as much as $3 million to move, though
some of it is paid over many years.
Morgan Stanley, the biggest U.S. broker with more
than 17,000 advisers after its takeover of Smith Barney,
believes that high broker turnover is "inconvenient for clients"
while expensive recruiting wars for top brokers is a tax on
shareholders, Chief Executive James Gorman said in a conference
call with analysts last week.
Fewer advisers have been moving because of industry
consolidation and because the taint of scandal against big banks
is fading, he said.
The FINRA proposal, for its part, has not led to a "marked
increase" of brokers trying to leave or get hired at Morgan
Stanley, spokesman James Wiggins said in an email.
Bank of America, parent of Merrill Lynch Wealth
Management, said last month it supported the FINRA rule.
A company spokeswoman declined to comment on whether brokers
have been trying to negotiate deals before the rule takes
effect. In its earnings statement last week, Merrill said
turnover among its top brokers was at "historically low levels."
The biggest brokerage firms, which also include UBS and
Wells Fargo & Co's Wells Fargo Advisors, have been
enjoying high retention rates, primarily because of retention
deals that are set to expire in two to three years. Once the
latter happens, recruiting wars with big packages will revive
among the big firms and at smaller competitors, even with the
FINRA rule in place, according to two broker-dealer executives
who declined to be named.
Even UBS's Santucci doubts that the rule will put a damper
on signing packages in the long run.
"I've been in this business since May of 1984 and I've heard
every year that deals are going to get smaller," he said.