The following was co-authored a former UST employee, now working at another bulge bracket firm and Barry Ritholtz. It is a little inside baseball, but is quite instructive as to the state of the finance industry.


Bloomberg broke the story about U.S. Trust (a division of Bank of America) slapping its advisers with a draconian adhesion contract mere days before they were to be paid their 2010 bonuses:

Bank of America Corp., which lost a financial adviser with $5.9 billion in client assets to a rival in December, told some workers to sign agreements forcing them to go on reduced-pay “garden leave” if they plan to resign.

Employees of the bank’s U.S. Trust unit received the notice this week ahead of 2010 bonus payments and were told their continued employment hinged on agreeing to the new policy, said a person with knowledge of the correspondence. Advisers who previously could leave after two weeks notice now must remain for 60 days and are forbidden from soliciting clients for a total of eight months, according to a copy of the document.

I never practiced employment law, but damn if this doesn’t strike me as abusive at the very least; whether its enforceable is another question entirely.

Most people who had the option would not sign — but it strikes me as extremely coercive. The implication, according to a UST employee we spoke with, was that if you didn’t sign it, your  bonus was put at risk. (This would make for an interesting class action case).

Assume you are an RIA/Broker working for a mega-firm. You do your work, you are not looking for another job. Your family has been counting on your 2010 already earned bonus. It is often the lion’s share of your annual compensation. Unless you are willing to sacrifice 50% + of your annual wages, you have no choice but to sign this onerous labor agreement.

You have been coerced.

Given all the brouhaha about unions, issues such as this make it hard to argue their necessity ended last century. Would an atrocity like this have any chance of taking place under a collective bargaining agreement? To preempt the argument that (presumably) high-earning financial advisers have no real need for collective bargaining, I offer the following six letters:  NBA, NFL.

For a bit more “inside baseball” on this file, consider the fact that all financial services firms essentially say the same thing, to wit:  “Our clients’ interests come first,” or some such pablum. Of course, the reality is that their fiduciary obligation is to their shareholders; Recall that attempts to place a fiduciary obligation to their clients was met with fierce resistance.

So how do we reconcile firms supposedly putting their clients’ interests first with those same firms putting those same clients’ advisers on garden leave, and then forcing an eight month non-solicitation?  That period of separation between an adviser and a client who wants to be with him is an eternity in the brokerage business — the S&P500 went from 1300 to 680 between August 2008 and March 2009.  How’d you like to have been unable to speak with the person who did your retirement planning, asset allocation, or any other financial management?

Your most trusted adviser? Sorry, we are concerned he might go to another firm with your assets, so you cannot speak to him now. Clients first!

Prior to 2004, brokerage firms routinely did two things:

1) Paid absurd amounts of money to recruit other firms’ brokers in a massive, zero-sum circle jerk, the stupidity of which is simply mind-numbing.

2) Slapped temporary restraining orders (TROs) on departing brokers to prevent them from taking their clients.

They ultimately realized that the only people making out on the TROs were the attorneys, so three firms — Merrill Lynch, UBS, and Smith Barney — drafted and signed the Protocol for Broker Recruiting (see below). In a nutshell, it put an end to the madness of TROs by establishing an agreed upon  set of rules which (if followed by the brokers and their firms), would allow freedom of movement between firms.  That took care of item #2 above.  Item #1, remarkably, after a distinct recent lull courtesy of the financial crisis, is now going gangbusters again, with recruiting packages at all time highs — up to 300% (or more) of a broker’s trailing 12 months production.

Here’s the stated goal of the Protocol for Broker Recruiting:

Note the focus on the “clients’ interests.”

Although only three firms initially established the Protocol, over 500 are now signatories.  But guess which firms never were?  U.S. Trust and Bank of America.  So now U.S. Trust — having lost a broker with $5.9 billion in assets under management — is going to try to keep its remaining adviser workforce in place by slapping this onerous contract on them.  Whether or not it would hold up in court — if it ever got that far — is questionable (I tend to think it would not, but it will take an adviser with cojones to challenge it).

The bigger mystery to me is how in the world they — U.S. Trust — expect to hire any new advisers. Do they think any adviser with even one functioning neuron is going to walk through their doors and sign such a document when there are dozens of other firms he could go to free and clear? Are they so delusional as to think their “platform” is so far superior everyone else’s that it will trump their new Roach Motel employment policy?  Could management possibly be so disconnected from reality?

There has been much hand-wringing over whether or not parent B of A could (or would) attempt to impose a U.S. Trust-type adhesion contract on its 16,000+ strong Merrill Lynch advisory workforce. We tend to think not, for a couple of reasons, the most compelling of which is simply this: Imposing a U.S. Trust-type adhesion contract flies in the face of both the letter and the spirit of the broker protocol. There is no reconciling or harmonizing the two — they are two separate documents (the protocol and the adhesion contract) that are precisely at odds with each other.

Beyond that, Merrill can’t withhold its advisers bonuses for the simple reason that its advisers don’t get bonuses. So the minute they try to impose this draconian measure, there would be an unprecedented rush to the exits as brokers simply resigned en masse.

Of course, companies have done some remarkably stupid things — with or without McKinsey’s help — but a move like this would likely do irreparable damage to Merrill’s wealth management advisory business. Some we have spoken with believe it would even sound its death knell.

So, lets give thanks to the management at U.S. Trust: I greatly appreciate your grievous error. You have made your firm a far less desirable place to work — a roach motel of financial services that no longer can attract top tier talent. Thank you for attempting to shackle your workforce against its will.  Thank you for ensuring that no quality advisers in search of a new shop will give yours a look. I  have personally spoken with several top-flight UST advisers who have been very loyal, productive and happy at UST — until the moment they were forced to put pen to paper on the new(and quite possibly unenforceable) contract.

You’ve now turned your workforce against you. Well done. You have made my job of attracting top flight talent, asset managers and advisors infinitely easier.

To the management at Merrill Lynch: Please follow UST’s lead. My AUM will thank you for it . . .


See also:
The rise of the RIAs: $1.7T and counting  (Investment News)

Category: Corporate Management, Investing, Wages & Income

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

21 Responses to “Advisor/Broker Movement in the Finance Sector”

  1. Petey Wheatstraw says:

    “Thank you for attempting to shackle your workforce against its will.”

    The workforce/middle class voted for shackles. The workforce cheered its own disenfranchisement. When the right wing told the workforce that they would be punked, the workforce grabbed its ankles (apparently, each individual thought that only their neighbors and peers — who so richly had it coming — would get the rogering, or that if compliant and well lubed, they would be respected in the morning. Clue: You won’t be getting an engagement ring). So much for safety in numbers.

    The workforce is neutered, confused, self-hating, ignorant, weak, foolish, vainglorious, deluded, and too proud to stoop to self-preservation.

    There’s a war on (by golly, don’cha know . . .).

  2. budhak0n says:

    Screw the shackles. I just want to be paid for non performance.

    Yes I know this is the wrong year in the cycle to bring up that badly beaten puppy.

  3. JB says:

    I love this

    My term for when a Merrill guy is recruited over to Morgan Stanley or Smith Barney is “Prisoner Exchange”

  4. curbyourrisk says:

    MMM…blood in the water. I can;t wait for BAC to go down… Screw the TBTF bullshit… This turd has been cirlcing the bowl for long enough. Time to flush….

  5. Lyle says:

    Perhaps another step to fix the whole rotten structure, move to the point where a brokerage house is a web site and order takers, with no advise given or allowed to be given. The advisor is paid by the client and only by the client so the whole mess of conflict of interest is taken care of at once. Then advisors don’t get paid for trading volume or for selling what their brokerage house wants pushed not is what in the interest of the client. In essence this is the Vanguard Brokerage model, they just take and proceess orders. Advice is another division of the company in this case.

  6. Greg0658 says:

    “inside baseball” … ya but – remove cash fast is a death sentence – unless it is properly CDS Instrumented

    here is my sollution POTUS – freeze corporate bond and stock issuance – and allow proper flowout into Nation bonds – any nation they believe in .. FMCitBPtP* .. but it must be nation based not industry or corporate based – not in todays highly engineered society

    it is time to reduce the “in bounds” playing filed to control the fraud

    *coda – I guess bc its the system in place – giant steps are another death sentence

  7. Greg0658 says:

    typo “in bounds” playing field

  8. mfitz22 says:

    Lyle – This structure already exists: independent RIA’s that do not carry a broker dealer license. They charge for advice and should be able to tell you that 100% of revenue comes from clients (not fee sharing, kickbacks, etc.).

    Barry – What bothers me about this topic is that there is never any discussion regarding why an advisor decides to change firms. Maybe its obvious. I doubt its because UBS or whoever have better execution on their muni bonds…or better research on EM equities. So while the public firm is serving the shareholders…the advisor is serving his bank account. Let’s see, 3x TTM revenue to make the move? Then wait for the next cycle and do it again? Sounds pretty good to me Mr. Client. Oh sure, you’ll be better served at the next firm that pays me 3x revenue. Why should you move with me to the new firm? Um…because I’ll make a pile of money!!! Clients first huh? Bullshit. Most advisors think this way and it infuriates me.


  9. Greg0658 says:

    ps – not in favor of the massive middle men in commodities trade’g .. sorry half of the OddCouple (or both) @CME this am .. I don’t believe in the grease it gives the wheel boloney

  10. constantnormal says:

    Gosh … what happens to “earned” sales commissions in other industries (outside the financial circus) when salesmen quit mid-year? Many commission schemes — especially for sales of big-ticket items, like mainframe computers and expensive medical gear — are paid out over years, I believe. And I seem to recall (although my memory may be rusty/inaccurate here, as it has been a while since I worked in these areas), that if a salesman quits, he forfeits any future prorated commission income — EVEN FOR BUSINESS HE HAS ALREADY SOLD — when he departs.

    Boo-hoo for the poor, poor financial salesmen. Welcome to the Real World.

  11. constantnormal says:

    In many occupations, “non-compete clauses” are a part of the standard employee hiring documents. If an employee in areas deemed critical to the success of the business decide to leave, they agree to not work for a competitor (or sometimes even in that industry) for some number of months/years thereafter. This has been a standard part of the “real world” for a long time.

    Now, if a potential employee is a super-star that is being wooed by the potential employer, they can sometimes get the non-compete portions of the employment agreement waived, but I’m sure there are other shackles that take their place.

    The days of employee-employer trust and confidence ended a long, long time ago. “Shackles” are a standard part of the employer-employee relationship, and have been for a Very Long Time.

  12. NoKidding says:

    “Given all the brouhaha about unions, issues such as this make it hard to argue their necessity ended last century.”

    You want collective bargaining for a work force that works at 50% bonus pay?!

    Is not bonus money the ultimate scorecard for individual achievement, creating pay differential based on acheivement?

    Is not unionization the ultimate way to level the playing field with collectively agreed upon universal incentives, destroying incentive for outshining peers?

    Nobody who would embrace one culture well enough to succeed in it would survive in the other culture.

  13. ashpelham2 says:

    Well, I for one, am appalled at the folks responding negatively here concerning the cuffing and jailing of the American worker. Many of the “advisors” that exist in the financial firms of our once proud country are doing that job because their former careers were derailed by outsourcing or job eliminations. Many of the advisors working at the big firms, even the small firms, are doing it because they had skills in one industry that don’t transfer to something else, but they have deep contacts in the former industry and can effectively offer advice, after a significant training period, to those former contacts. And many, no, MOST of them, aren’t making the GS bonuses that the big boys on Wall Street pay for their Lotus Esprit’s with. No, most of them make just enough to get close to their former standard of living. They can’t go back to the industry they once worked in. And if they could, a few chose another profession so that they could POTENTIALLY make more money, because their wages were capped at the old job, while the costs of living in our once-proud nation have NOT BEEN CAPPED.

    So, for everyone here who is poo-pooing the EXTREMELY THOUGHTFUL and thought-provoking blog entry that the guest author submitted, I sense a deep hypocrisy in your comments. Many of you abhor corporate America’s ways of keeping down the upward movement of working Americans. This type of agreement that BofA is pushing is one more of those ways. And, the biggest slap in the face is that this document comes from a company who was pushed to the brink because of their own greed, but is now pushing it’s own employees out of the business for the same greedy reasons.

    I’m now a FULL-ON supporter of labor unions in this country. I think they not only SHOULD exist in private AND public workplaces, but they should be promoted in countries that don’t “allow” labor unionization or collective bargaining. The fulcrum has moved to far to one side. If costs are going to go up, wages should too.

  14. curbyourrisk says:

    Listen ashpelham…..if you want wages to go up….bring back real jobs. People sitting behind desks (of which I do) mostly do not create any real products. Real wages means REAL JOBS. Bring back manufacturing to the UNITED STATES, which by the way would MOST LIKELY be union jobs.

    If not, then simply do as Karl Denninger has been requesting…. Wage and environmental tarriffs on all goods produced over seas and brought back here for sale. Make production competitive.

  15. Expat says:

    Big banks are horrible places to work if you are not a top dog. I worked for Citi for a while. When they binned me (don’t ask), I was asked to sign a 100 page departure contract absolving every worldwide Citi affiliate (listed by country, no joke) from any responsability and waiving all claims past, present and future against Citi for any and all transgressions. I asked why I needed to sign the document since I had a fifteen page employment contract already in place with at least two pages dedicated to termination procedures. I was told that failing to sign would result in the withholding of my already earned bonus.

    I told the HR person and my manager to fuck off (which might explain in part why Citi didn’t want me hanging around in the first place) and pay me or go to court. I received a check in an hour. Of course, I was a trader and didn’t take crap from many people (wife, mother, daughter excluded). But how many other employees bend over and sign these kind of things. And this was while Chuck “Fat Chucky” Prince was dancing away while the music was obviously winding down.

  16. curbyourrisk says:


    this on the same day that BAC announces they have poached Stuart Hendel from UBS AG’s prime brokerage…… He begins in June.

  17. Invictus says:


    Is not bonus money the ultimate scorecard for individual achievement, creating pay differential based on acheivement?

    No, not in the least. Exactly the opposite. Straight commission is the ultimate scorecard for individual achievement. Bonuses are discretionary and based on myriad factors, some of which the recipient may not even be aware of or have any control over (i.e. the size of the bonus pool, for example). How many tens of billions were paid in bonuses to management/traders who brought their firms to their knees?

    I’m not sure if your comment was tongue in cheek, but if you were serious, I strongly disagree.

  18. willid3 says:

    not sure why, but if so many can’t get worked up about the trashing of teachers, then i am guessing it will be harder still to get concerned about broker/advisers. not saying that its right, its just the way the workforce of today has been treated for many decades now. if its good for teachers to be treated well, then it would be good the others too.

  19. Invictus says:

    Discussion on this post between Tom Keene and Brad Hintz (analyst at Sanford Bernstein) appears at the 9:40 mark of this video.

  20. gman says:

    “Is not bonus money the ultimate scorecard for individual achievement, creating pay differential based on acheivement?

    Is not unionization the ultimate way to level the playing field with collectively agreed upon universal incentives, destroying incentive for outshining peers?”

    No more Fox or WSJ op=eds for “no kidding”. The NFL and NBA labor unions have really “destroyed the incentive to outshine peers”! Since becoming unionized those lazy uncompetitve players don’t care anymore.

  21. No Hardball Garden Leave at Merrill, Krawcheck Tells Advisors
    Mar 7, 2011 5:52 PM, By John Aidan Byrne

    Sallie Krawcheck to Merrill Lynch financial advisors: “Rest easy.” In an email memo, Krawcheck, the head of Bank of America’s wealth management business, recently told Merrill’s thundering herd that the bank’s new “garden leave” employment policy agreement won’t apply to them. Under that agreement, which was circulated in mid-February, advisers working at BofA’s US Trust unit must commit to stay at U.S. Trust for sixty days after they resign, and avoid soliciting clients for eight months after they resign, in order to qualify for 2010 bonuses and their continued employment.

    The Charlotte, N.C.-based bank, which employs 15,500 advisers at Merrill, 2,200 more at U.S. Trust, sent nervous ripples through Merrill when it sent the employment document around.

    “Sallie e-mailed a letter saying the bank is not implementing it at Merrill,” one big producer at Merrill Lynch, told Registered Rep., referring to Krawcheck, who oversees a wealth management empire that accounts for $2.2 trillion in client balances. “There was no truth to any rumors that the agreement would be extended to Merrill,” added this adviser. “That’s what we were told in the e-mail.” (A second person at BoA also confirmed the e-mail.)

    BofA’s garden leave agreement has generated a storm of withering criticism from advisers within BoA, and from people outside the company. “The policy is definitely a bit on the harsh side,” said Alois Pirker, a securities industry analyst at Aite Group. “It’s pretty moronic, strategically,” added one former Merrill adviser who said he had heard scathing comments on the policy from advisors at BofA. “How can they hope to recruit talent?” Industry recruiter, Danny Sarch, said it was “unconscionable” what BofA had implemented. “They want to enjoin these guys at U.S. Trust from talking to their clients after they resign,” he added. “I find that repugnant.”

    Still, people close to BofA privately accuse rivals of unfairly smearing US Trust, in a competitive industry where poaching talent—and signing bonuses as large as 300 percent or more of trailing 12-month revenue—has upped the ante. “Some folks out there are planting these negative stories with journalists,” said one US Trust source.