The recent sale by Ameriprise Financial of its Securities America advisory services has led to a new “buzz” on the street.

The big question: Is this a new wave of consolidation within the finance industry similar to what we witnessed over the past two years?

Two differing opinions were quoted by Dave Lindoff for OnWallSteet on August 17.

1. S&P asset management industry analyst Chris Maimone thinks there are more to come if equity volume continues to trend lower due to marginal economic data coming out, but the consolidation is likely to come from the smaller players who have less staying power and flexibility. (Unlike the recent Ameriprise Financial deal which was due mainly to their desire to focus on their own brand; plus they made a nice profit on the sale.)

2. Another opinion comes from Haywood Sloan, principal at Diversified Services Group, who thinks current consolidations are just aftermath of the huge wave we saw in 2009-10, and are more about growth, not shrinkage.

Paul Reilly, CEO of Raymond James agrees with Sloan, stating that financial companies today are more liquid and less leveraged, so expects fewer failures and consolidations.

However it plays out, brokers are still on the move.

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Pay Czar Feinberg thinks so, and is moving forward to take a look at 104 top executives beneath the CEO’s and their payouts during the financial crisis – all within companies and financial firms who received TARP funds.

The Management Executive Committees of the firms have claimed the necessity to provided large payouts and retention bonuses in order to keep and recruit top producing executives (stats pointed to 88 execs who stayed with their original companies).

But what will exposure mean?

Nothing, really, as Feinberg can only “recommend” reduction in pay and publically “expose.”

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Is there more bad news for the few remaining wirehouses of Wall Street?

I refer you to a very thought provoking piece in InvestmentNews by Evan Cooper. It’s worth the read:

Wirehouse Walls Set to Come Tumbling Down?

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Those wirehouse firms where defecting financial advisors have been fleeing from are coming after you…and FINRA is backing them!

Over the past year, firms have been aggressively trying to collect departing advisors’ “loans” – you know, that upfront cash they recruited you with based on your trailing 12 month production. (There was that fine print clause that the advisor must repay the money if they left the firm before a certain amount of time.)

OnWallStreet.com:

Over the past year, firms have been getting noticeably tougher in ensuring they collect the departing advisors’ loans. Often times, financial advisors are under the misconception that a member firm will accept a 50% repayment of a promissory note. In reality, member firms are aggressively pursuing payment of the entire principal amount-and then some.

Most promissory notes contain a provision permitting the firm to recoup all interest, costs and attorneys’ fees spent in the collection of the promissory note, and many FINRA arbitration panels will enforce these payments as well.

So, if you are one of those who left before “his time was served,” expect to hear from FINRA, who has set in place some new procedures to speed up the hearing of these cases.

So, if any of this applies to you…READ ON…It’s Payback Time on Promissory Notes.

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Well, the continuing hot news on Wall Street centers around reform, regulation, and compensation overhauls…

     ”radical change amid intense pressure”

          - Market Watch, by Alistar Barr on 03/16/09

Top that with the AIG hearings and outrage this past week and you’re bound to see more and more investments firms looking to buy or build a bank in order to grow deposits and assets.

Quite a turnaround from the era of private firms going public to put their “risk” on the shareholders versus the partners!

And in the center of all this we are already seeing some change on Wall Street, i.e. Morgan Stanley is now paying part of year-end bonuses to vest over three years, some of which could be taken back if employees engage “in conduct detrimental to the firm.” (CEO John Mack’s internal memo stated he and other senior executives would be paid partly based on Morgan Stanley’s performance over three years, rather than one.)

This could go a step further as some lawmakers are looking to pass legislation that would tie all Wall Street pay to the long-term performance of firms.

Now add in the regulatory tidal wave to restrict the firms’ private-equity businesses and limits on investment banks trading with their own money and you’ll inevitably see a drop in the profitability of the mega banking / investment firms.

So, where does the money left on the table go?

Like I have been predicting and we are now seeing as financial recruiters, the smaller investment banks and boutiques are expanding and hiring top advisors and bankers from larger firms, thus rewarding those that did not have highly leveraged balance sheets when the crisis hit.

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Morgan Stanley and Smith Barney brokers appeared hopeful last month when James Gorman, co-president of Morgan Stanley and chairman of the new joint venture, confirmed that there would be retention deals for both sides, with the “packages structured attractively in line with industry practice.”

The intent, of course, being to dissuade top brokers from leaving.

Many recruiters anticipated the retention deals to look a lot like those offered by B of A to Merrill’s brokers.

Our President and CEO, Bill Willis, cautions that the change in the political environment may result in limiting “over generous” packages, especially if the money comes from bailout funds.

When interviewed by Helen Kearney, reporter for On Wall Street, regarding this issue Bill expressed:

“It’s hard to conceive that Democrats will approve of paying stockbrokers who are perceived to be wealthy individuals, to stay at the firm.”

So, again the question comes back to us…will the brokers jump ship and where are they going to go?

A lot fewer options out there now, but in this economy, brokers are going to look for good product and technology for sure, and we see a lot of potential with some strong Regionals looking to grow and take advantage of our rapidly changing financial industry.

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Greed and Entitlement!

I thought I had seen it all until last week’s “resignation” of Merrill’s CEO John Thain…the revelation of his secret last minute 4 billion dollar bonuses paid out in December (versus “normal” January bonus payouts)

…Oh, and by the way, he was simultaneously preparing a report of 15.3 billion dollar fourth quarter losses!

Meanwhile, down the block B of A is writing a request for more government bailout funds!! Was it indignation I felt? Shock? Embarrassment? Or even rage?

Actually, I don’t think I felt much of anything; perhaps some sadness or resignation to the reality of what has become the “norm.”

But, I was somewhat encouraged to see that Ken Lewis bought 200,000 shares of B of A. I still foresee a good percentage of Merrill’s 19,000 financial advisors joining forces with the Brokers on the Move from the big wire houses this year, and Willis Consulting is in the process of expanding and paving the way to service and place these “movers.”

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Looks like there is a trend (or maybe just talk on the street) by some mid-range financial advisors to “band’ together in some kind of team; flee the big wire houses and go independent or sell themselves as a package deal to the smaller firms.

…could work, but could backfire too…tough to keep the “team” together and under the same focus…

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As financial recruiters, we know for certain that an “innovative” candidate must not risk losing their ethical compass or put their short-term personal gains above other considerations, such as was the case in the subprime mortgage market in the U.S.

Ethical investing practices must be the backbone of innovation!

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Interesting to look back to the first and second quarter earnings reports by top investment banks including Lehman Brothers who in June, 2008, reported nearly $3 billion in losses due to bad bets in mortgage-backed securities and other risky investments…so what did they do?

Well, the CEO and COO announced they were giving up their 2008 bonuses.

“This is my responsibility.” CEO Richard Fuld told analysts in a conference call. And then the bank raised $8 billion in “fresh” capital! (As reported to the Associated Press on 06/30/08.)

Where did that go? Someone knew the storm was coming.

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