It's no secret that sweetened recruiting deals have been a key tool in the broker wars over the past few years. But now some firms are regretting extending such generous offers, the Wall Street Journal reports.
It turns out that attracting advisors and keeping them are two very different things. In some instances, advisors accepted handsome signing bonuses and then simply left the firm after a few months. In other examples, they stayed but failed to churn out the revenues expected of them.
As a result, firms are flocking to FINRA to try to get their money back. Finra arbitration panels have issued 165 awards this year, punishing brokers who take the money and run -- about 17% of all arbitration awards FINRA doles out in 2010 and the highest percentage in a decade.
Brokerage firms tend to win a high majority of the cases brought before the panels. One reason is because many employees sign contracts that state they have to stay at the firm for a certain amount of time before departing, or sign contracts that say they have to repay a firm if they cut loose.
Firms are also trying to get their brokers to win back their old clients and generate more revenue. Underperforming brokers won't have to pay back their new firms, but employers are putting on the pressure for better performance.
While many firms, UBS included, are losing money from the sweetened deals, it's unlikely that they'll stop any time soon. Every brokerage offers signing bonuses and similar retention awards, so if a firm were to stop, it would effectively give the others a comparative advantage. That's good news for brokers, who will continue to be able to have their pick of firms.
Write to Julie Steinberg