Independents’ day near with Pru’s broker force

Some brokers with Prudential Securities Inc. of New York are being courted heavily to move to independent broker-dealers.

In the wake of Prudential’s announced merger with Wachovia Securities Inc. of Richmond, Va., New York wirehouses such as UBS PaineWebber Inc., Merrill Lynch & Co. Inc. and Salomon Smith Barney Inc. have snagged their fair share of Prudential’s registered representatives.

But former Prudential brokers, recruiters and broker-dealer executives say independent firms are also actively looking to pick off Pru brokers.

“Independent firms are more aggressive than they’ve ever been,” says Danny Sarch, a brokerage recruiter in White Plains, N.Y. “Everybody smells the blood in the water about Prudential.”

Observers say that Raymond James Financial Services Inc. of Atlanta, Royal Alliance Associates Inc. in New York and Linsco/Private Ledger Corp. of Boston and San Diego are among the most aggressive pursuers of Prudential brokers.

Since the start of the year, Prudential has lost at least 408 brokers, dropping its total at the end of April to 3,969 (InvestmentNews, May 26).

Reasons for departure include jumping to a rival, retirement or exiting the industry.

Brokers may leave a firm to jump ship to a rival, retire or exit the industry. But according to one published report, Prudential has lost 271 brokers to rivals so far this year.

“This year, we’re seeing more interest from wirehouse reps, including Prudential and Wachovia,” says Bill Dwyer, an executive director in Boston with Linsco who oversees recruiting.

There are two major reasons, he says. Wirehouses have cut back brokers who don’t produce above a certain minimum in commissions, commonly in the range of $200,000 to $250,000.

The wirehouses have also closed remote offices and have pushed some brokers to join large branches. Picking up such brokers “is a huge opportunity for us,” Mr. Dwyer says.

The Wachovia deal apparently has made some Prudential brokers more than willing to make the leap. One independent broker dealer reports that it has received calls from 10 Pru reps since the deal was announced in February – as many calls as it got from brokers from all other firms combined – whereas it had received none up to that point.

Wirehouse brokers are often reluctant to change to an independent firm, says Mr. Sarch. “With independents, there’s a world of difference. They generally don’t pay upfront money for brokers but sometimes will offer loans to defray expenses.”

Wirehouses are offering top Prudential brokers deals of 100% – or more – of brokers’ gross commissions to leave, Mr. Sarch says.

Independent broker-dealers say brokers will recoup that bonus over time with their higher-percentage payout, and also wind up owning the business, he says. It comes down to a broker choosing an immediate payout or one over a longer term.

Prudential and Wachovia brokers, however, are making plenty of calls of their own to independent broker-dealers, executives say.

“The instability of that situation has been clear to us,” says Erik Schwartz, president and chief executive of Cambridge Investment Research Inc. in Fairfield, Iowa.

“Before 90 days ago, we weren’t getting calls” from brokers with Prudential or Wachovia, he says. Since then, Cambridge has received 10 calls from Pru brokers interested in moving to an independent firm, he says.

When a broker changes firms, the process takes months. Mr. Schwartz says that “one or two” of those brokers are likely to move to Cambridge at some point.

Many former Pru brokers have a litany of complaints about the firm.

They include: the firm’s repeated but broken promise last year that it wasn’t for sale; private-client-group head Michael Rice’s role as a director of a scandal-plagued Canadian tech firm (InvestmentNews, Dec. 9); the firm’s attempt to slip a non-compete, non-solicit clause into a work agreement with brokers (InvestmentNews, March 17); and its recent boosting of fees on money market funds.

“That’s some of the sleaziest things I’ve heard since being in this business,” says one Pru broker who moved to a rival after the deal was announced in February.