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Major Wirehouses Offering Golden Handcuff Payments to Indie Brokers

By SHUSTAK REYNOLDS & PARTNERS of Shustak Reynolds & Partners, P.C. posted on Monday, September 12, 2011.

Desperate to reel in star brokers, the major wirehouses are fishing more than ever in the unlikely and foreign waters of independent-contractor broker-dealers to hook their top representatives.

According to clients we have spoken to, the deals that firms such as Bank of America Merrill Lynch and Morgan Stanley Smith Barney LLC are dangling before these independent reps are just as generous, if not more so, than the top recruiting packages for elite wirehouse brokers who annually produce $1 million or more in fees and commissions. Traditionally, the forgivable loans (or, as we call them, Golden Handcuffs since they are intended to force a broker to stay with a firm until the note is forgiven over a number of years) were equal to the broker’s last twelve months of revenue generated (ie. the trailing twelve). Lately, however, we see firms anxious to hook the big producers offering prospects a chance to carry old assets as well as building new business, and forgivable notes as high as 300% of a broker’s prior year’s earnings, or “trailing 12” as it is called in industry shorthand.

All four major wirehouses, including UBS Financial Services Inc. and Wells Fargo Advisors LLC, are in the chase, brokers and industry observers said.

At the same time, we see a steady outflow of frustrated, unhappy brokers jumping ship from the major wirehouses which in many cases have made life very difficult for brokers. At least once a week an unhappy broker comes to see us about dealing with an unpaid forgivable note left behind when the broker either was forced out of or voluntarily left a major wirehouse.

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