BEHIND THE NEWS: Crisis may reshuffle city’s star stockbrokers


Turmoil on Wall Street-including Merrill Lynch’s $50 billion sale to Bank of America Corp.- could throw into play some of Indianapolis’ biggest-producing stockbrokers.

Charlotte, N.C.-based Bank of America recognizes the risk and is preparing to roll out retention bonuses for its arsenal of 17,000 brokers, 136 of whom work out of the Indianapolis area.

“We have the capacity to do that, and would plan to do something because it’s the crown jewel of the company,” Ken Lewis, Bank of America’s CEO, told analysts this month.

Industry observers say the bonuses likely will be in the seven figures for some of Merrill’s biggest producers, such as Tom Buck and Rich Searles in Indianapolis.

The stakes are huge. Top brokers oversee hundreds of millions of dollars in assets, generating millions of dollars in fees and commissions for their firms annually.

Banks over the past decade have become heavyweights in the brokerage business, thanks to an acquisition spree. And this month, two titans of Wall Street-Goldman Sachs and Morgan Stanley-said they were reorganizing into bank holding companies in response to wrenching turmoil in their industry.

But to many brokers, the increasing role of banks is an unwelcome trend. The tightly regulated industry is known for more modest compensation practices and a top-down management style that doesn’t always sit well with entrepreneurial brokers.

Recruiter Darin Manis predicts the Merrill sale will trigger a “massive hiring frenzy” around the country.

But Merrill isn’t the only firm that could lose brokers. Uncertainty swirling around other struggling Wall Street firms, such as Morgan Stanley, also could spur efforts to poach top talent. Morgan this month announced it was selling a 20-percent stake in itself to a Japanese bank.

“Everybody is vulnerable in today’s market,” said Manis, CEO of RJ & Makay, a financial-services recruiting firm headquartered in Colorado.

That’s not just because of potential cultural tensions. Merrill brokers know that however large their retention bonuses might be, they could score a bigger windfall by going elsewhere.

Top brokers who switch firms can command a one-time payment for making the move equal to 200 percent or more of their annual production. One producing $1 million in revenue for his firm, for example, could land $1 million upfront with another $1 million provided as a forgivable loan. One-hundredthousand dollars might be wiped away each year for 10 years, a tactic brokerage firms use to help ensure brokers stick around after they’re hired.

Merrill’s Buck, whose team oversees more than $750 million in assets, said such opportunities are the last thing on his mind these days.

“I get calls fairly regularly from headhunters, which I routinely ignore. I’m sure there have been some called in recently, but I ignore them even more now,” said Buck, who’s been with Merrill since 1981.

“Frankly, if you are worried about that stuff now, it’s the wrong time,” he added. “This is when to focus on taking care of your clients. That’s all I have time in the day to do.”

Awkward timing

Some veterans of the local brokerage industry aren’t expecting sweeping departures. For one thing, this is an awkward time to broach the topic of transferring accounts with clients, given the bruising many have experienced, noted Chuck Singer, a Smith Barney senior vice president and resident manager.

Another issue: If brokers are looking to avoid bank ownership, there aren’t a lot of options left. Smith Barney, for instance, is owned by New York-based Citigroup, and NatCity Investments is owned by Cleveland-based National City Corp.

More likely, brokers will flock out of Wall Street firms and instead join or set up independent registered investment advisory firms, said Paul Coan, a former Morgan Stanley broker who now is managing partner of one of those firms, locally based Wealth Planning & Management.

Advisory firms, many of them small, are the fastest-growing segment of the investment industry. Research firm Cerulli Associates of Boston said the ranks of registered investment advisers have swelled from 11,745 to 14,451 since 2005.

The firms don’t dangle big financial packages to attract talent. But nonetheless, they can be more lucrative. A broker generating $1 million for a Wall Street firm annually might earn $440,000 in compensation. An investment pro at an advisory firm might get closer to 70 percent of that million.

“Many advisers who have been entertaining the idea of going independent will see this as the right time to do so,” Alois Pirker, an analyst with the Bostonbased consulting firm Aite Group, said in a report.

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