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Major Wirehouses Holding Billions In Up-Front Notes

By Erwin J. Shustak Esq. of Shustak Reynolds & Partners, P.C. posted on Wednesday, August 20, 2014.

Erwin J. Shustak

Erwin J. Shustak

Managing Partner

LocationSan Diego, California
New York, New York
Phone: (619) 696-9500 (Ext. 109)
(800) 496-5900 (Ext. 109)
Email[email protected]

According to a published report today, the top wirehouses are holding billions of dollars of up-front notes given to entice brokers to join, or stay, at those firms.  Morgan Stanley Wealth Management reported holding more than $5.2 billion in outstanding loans to its 16,300 financial advisors.  That equals over $320,000 per MS adviser.

UBS Wealth Management Americas, which has 7,119 advisers, reported holding nearly $3 billion in recruitment loans to advisers, averaging approximately $420,000 per adviser.

The upfront loans are usually equal to as much as 150% of the broker’s “trailing twelve” gross production during the prior year and are structured to be forgiven over anywhere from 7 to 12 years.  The notes are forgiven in equal amounts each year provided the broker remains the firm and continues to meet performance goals.

Many of the Morgan Stanley notes have been the subject of arbitrations involving brokers who contend they were misled into joining or remaining at the firm and should not have to pay back their notes upon leaving.  Morgan Stanley reported that, in the current quarter, it will not be able to recoup at least $128 million in notes which could be attributable to some of those disgruntled advisers.

Shustak Reynolds & Partners, P.C., California and New York, represents financial institutions, registered representatives, investment advisers and others in the financial services and securities industry.  The firm has had substantial experience dealing with these type of up-front, forgivable loans. The firm’s web site is

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