Brokers worried about clients, their businesses and employers

A budding panic is emerging among wirehouse brokers and their clients.

Some clients are starting to bail out of stocks. And as brokers see their businesses go flat or head south, concerns about the financial health of their employers continue to plague them.

What’s more, stocks of big securities dealers and banks have sunk to lows not seen since the 2002 market nadir — or even longer. Those declines have worsened the personal financial drain for wirehouse reps, many of whom are heavily invested in company stock.

Brokers are “feeling it personally … because of the lost value of stock they hold in their own firm,” said Barbara Herman, a senior consultant at Diamond Consultants LLC, a Chester, N.J.-based recruiter.

It’s not uncommon for veteran brokers to have millions of dollars in company stock from deferred-compensation and recruitment deals.

Losses on the stock is “where the real anxiety is [coming] from,” said a Merrill Lynch & Co. Inc. rep on the East Coast, who asked not to be identified.

“A lot of these [veteran Merrill] guys have never sold a share” of stock, he said.

Brokerage firms have yet to report second-quarter results, but most industry observers expect to see more negative effects of the recent market swoon, as well as more write-offs.

New York-based Merrill Lynch & Co. Inc. is due to report quarterly results Thursday.

Several wirehouse reps said their revenue this year could be down as much as 15% to 20% from 2007.

Fee-based accounts aren’t helping, because assets levels are down, said Rick Peterson, a Houston-based recruiter.

At times like these, brokers “quit building business and just hand-hold,” he said. “Every [branch] manager we talk to says business last month absolutely stunk.”

Observers expect that some brokers will take offers from competitors to make up the losses on company stock and ease the pain of a soft market.

“A lot of wirehouse reps are looking at alternatives because they’re angry and disappointed at what happened to the [company] stock they got from their last move,” said Mitch Vigeveno, founder of Turning Point Inc. a Safety Harbor, Fla.-based recruiting firm.

The stock they own is down 50% or more “because of someone’s mismanagement,” he said. “Do they really want to be identified with that brand anymore?”

But some recruiters and brokers wonder how long the financially stressed wirehouses will be able to offer attractive recruitment packages to brokers whose production is falling.

And clients are less likely to move during a bear market, Mr. Vigeveno said.

Meanwhile, speculation is rife among the broker ranks about potential mergers. Brokers at UBS Financial Services Inc. of New York and Wachovia Securities LLC of St. Louis are especially on edge about a change of ownership, figuring that their troubled corporate parents may sell their securities units to raise cash.

Foreign firms that could take advantage of the weak dollar, such as the Royal Bank of Canada and Deutsche Bank AG, are seen as likely buyers, as well as a stronger U.S. bank such as JPMorgan Chase & Co.

ANXIETIES GROW

Clients, meanwhile, have been unwilling to take risks, and some have been moving into cash and bonds, some brokers said.

Brokers say that anxieties grew even more last week when stock of Detroit-based General Motors Corp. reached a 50-year low — falling briefly to less than $10 a share — surrounded with questions about its survival.

Brokers have many older clients who have owned GM over the years and still see it as a bellwether for the economy.

“I just had a client [pull] out a million [dollars]” from a respected value manager whose short-term results have suffered, said a Wachovia rep in the Southwest, who asked not to be identified.

The client may be “pulling out at the bottom,” this broker said, but “he’s a doctor who absolutely knows more than I do.”

A UBS broker on the West Coast, who asked not to be identified, related a similar story — a client going “down the list and telling me what [stocks] to sell. And this client doesn’t know [anything] about the market.”

The current bear market is compounded by the credit crisis, which has some clients worried about the stability of their brokerage firms.

“I’ve been getting calls from clients wondering if their money is safe” at Wachovia, said a Northern California-based broker at the firm, who asked not to be identified.

To be sure, not all clients are panicking. And some advisers say the bear market has actually helped them pick up some business.

“I got three referrals last month of [investors] who were panic-stricken,” said a Wachovia broker based in the Northeast, who asked not to be identified.

“One couple wanted to sue their broker at Merrill, but that broker was just trying to be conservative” with blue-chip stocks that have fallen more than the market, the Wachovia rep said.

This broker said he began shifting several years ago into resource and materials stocks, as well as managed futures and precious metals.

“Those of us who’ve been around since the 1970s have seen this [commodities inflation] before,” he said. “Not everybody is dying out here.”

The Wachovia rep in the Southwest, a legacy broker with St. Louis-based A.G. Edwards & Sons Inc., said he has recently taken on several conservative clients who wanted more safety.

“And I’ve been kind of surprised how many [accounts] have stayed here rather than transferring” after brokers left following the merger of Wachovia and Edwards, he added.

E-mail Dan Jamieson at [email protected]