It never ceases to amaze me that Bank of America has managed to stay in business. Personally, I always thought they were a terrible bank, with terrible rates, annoying terms and conditions, and really annoying marketing. As a brokerage firm, they have simply bumbled and stumbled their way through the acquisition of Merrill Lynch, turning a unique opportunity into a disaster.
There are too many misteps to detail, but the ones that directly affect brokers makes the point - plus there is a new disaster breaking.
Right after the merger Bank of America had a problem. Its US Trust brokers had some of the same clients as its Merrill brokers, and the two firms were, on a certain level, competitors. The same is true on the retail side, but the problem is what do you do about integrating the brokers and the customers?
There are any number of solutions, but Bank of America decided that brokers who Merrill recruited from US Trust could no longer solicit their US Trust clients to join Merrill. That obviously causes a significant problem for the new US Trust recruits - who are recruited by Merrill to bring their clients from US Trust. Imagine that series of conversations:
"Bring your business to us, we want your US Trust clients, get them over here."
"We will give you a huge bonus, as a loan, and you will be able to pay it off with the money that you make with us"
There was also the 50% pay cut imposed on bank brokers. Yes, those stock brokers who sit in bank branches and provide investment services. Their compensation structure is different from that of a stock broker on the brokerage side of the business. Their payout is lower, but they have some advantages - a build-in client base, and referrals from the branch bankers. For reasons which still remain a mystery to the brokers involved, Bank of America decided one day to stop permitting bankers to give referrals to the bank brokers, and then in order to insure that they really screwed the brokers, they cut their payout in half. A 50% pay cut plus a loss of your largest source of referrals. Many brokers were simply forced to leave because of this flagrant breach of contract, and the reality that you cannot earn a living after a 50% paycut. You have to leave in order to support your family.
Then Bank of America refused to join the Broker Recruiting Protocol, creating the interesting situation where Merrill brokers were covered by the protocol, but Bank of America brokers were not. And just to make sure the process was an entire mess, they began to consolidate the bank brokers with the brokers at Merrill. That created significant problems with the Recruiting Protocol. While those were ultimately addressed, it created additional problems for individual brokers, many of whom were forced back to a branch that they left - brokers who got into a dispute with Bank of America managers and quit to go to Merrill are finding themselves back at their old Bank of America office, with the same manager.
To no one's surprise, Bank of America is having trouble recruiting brokers. Shocker. What would a reasonable firm do in such a situation? There are a ton of choices - increase pay packages, step up recruiting, and otherwise make your firm a place where brokers can bring their clients, with a good platform, favorable employment policies - things like that.
Did Bank of America do any of that? Of course not. Instead of making the firm a place to conduct a securities business, add value to the customers, all to entice brokers to join, Bank of America has done the exact opposite - they have announced unilateral employment terms on their existing brokers, and new hires, in order to prevent them from leaving!
Some advisors at Bank of America Merrill Lynch's U.S. Trust unit recently received an ultimatum - a demand that they sign a new agreement that would effectively sideline them for up to eight months if and when they decide to leave the firm or else risk losing not only their 2010 bonuses but their jobs, too.
That's the ticket! We can't recruit brokers, so lets make sure the ones we have do not leave. Lets force them to give 60 days notice of termination, with a 6 month non-solicit of their customers! Not only does this move raise employment law questions, contract questions, and more, it raises questions regarding the Broker Recruiting Protocol and a potential breach of the agreement with 450 other brokers firms.
The Protocol was put into place to stop all of the lawsuits between firms when a broker moved. Firms were spending tons of money suing each other over recruiting and solicitation of clients. Three firms created and signed the Protocol, which is in essence an agreement between the firms to allow brokers to solicit customers when they leave, provided the provisions of the Protocol are met. Bank of America acknowledges that its Merrill brokers are covered by the Protocol, but continues to insist that its US Trust brokers are not.
How Bank of America intends to compete in an industry where over 450 of the firms have signed onto the Protocol remains a mystery, but this latest move is the icing on the cake. Brokers are aware of the existence of the Protocol, and in considering a move, factor the Protocol into their decision making. It obviously makes a significant difference if the new firm is part of the Protocol, as it makes the transition easier, and gives the broker a measure of comfort knowing that he will not be sued if the new position does not work out, and he wants to leave in a year or two.
But now US Trust, which is not part of the Protocol, and already has problems recruiting, has make the situation significantly worse. Any broker who is considering a move to US Trust is going to have to consider that once he goes there, he can never leave, no matter what happens - because if he does leave, he will lose his clients.
A two month garden leave plus a 6 month non-solicit is draconian. Even Bank of America can convince clients not to leave the firm if they get an 8 month head start.
Related Stories:
Prickly BofA slaps "garden leave" restrictions on advisers
US Trust Asks Employees to Confirm Broker Protocol Does Not Apply
BofA to Advisors: Take it Or "Garden" Leave It
BofA Forces "Garden Leave" on Brokers After Defection
There are too many misteps to detail, but the ones that directly affect brokers makes the point - plus there is a new disaster breaking.
Right after the merger Bank of America had a problem. Its US Trust brokers had some of the same clients as its Merrill brokers, and the two firms were, on a certain level, competitors. The same is true on the retail side, but the problem is what do you do about integrating the brokers and the customers?
There are any number of solutions, but Bank of America decided that brokers who Merrill recruited from US Trust could no longer solicit their US Trust clients to join Merrill. That obviously causes a significant problem for the new US Trust recruits - who are recruited by Merrill to bring their clients from US Trust. Imagine that series of conversations:
"Bring your business to us, we want your US Trust clients, get them over here."
"We will give you a huge bonus, as a loan, and you will be able to pay it off with the money that you make with us"
"Great you are here, glad to have you!"A complete disaster for those US Trust recruits, and Bank of America offered no solutions, no enhanced compensation, no additional loan forgiveness. Nothing, it just told its new hires, many of whom were big producers with signficant clients who they had built relationships with over decades, "too bad", "start over."
"Oh wait, you can't solicit your old clients to come over here. Not a problem, you can start all over again here!"
There was also the 50% pay cut imposed on bank brokers. Yes, those stock brokers who sit in bank branches and provide investment services. Their compensation structure is different from that of a stock broker on the brokerage side of the business. Their payout is lower, but they have some advantages - a build-in client base, and referrals from the branch bankers. For reasons which still remain a mystery to the brokers involved, Bank of America decided one day to stop permitting bankers to give referrals to the bank brokers, and then in order to insure that they really screwed the brokers, they cut their payout in half. A 50% pay cut plus a loss of your largest source of referrals. Many brokers were simply forced to leave because of this flagrant breach of contract, and the reality that you cannot earn a living after a 50% paycut. You have to leave in order to support your family.
Then Bank of America refused to join the Broker Recruiting Protocol, creating the interesting situation where Merrill brokers were covered by the protocol, but Bank of America brokers were not. And just to make sure the process was an entire mess, they began to consolidate the bank brokers with the brokers at Merrill. That created significant problems with the Recruiting Protocol. While those were ultimately addressed, it created additional problems for individual brokers, many of whom were forced back to a branch that they left - brokers who got into a dispute with Bank of America managers and quit to go to Merrill are finding themselves back at their old Bank of America office, with the same manager.
To no one's surprise, Bank of America is having trouble recruiting brokers. Shocker. What would a reasonable firm do in such a situation? There are a ton of choices - increase pay packages, step up recruiting, and otherwise make your firm a place where brokers can bring their clients, with a good platform, favorable employment policies - things like that.
Did Bank of America do any of that? Of course not. Instead of making the firm a place to conduct a securities business, add value to the customers, all to entice brokers to join, Bank of America has done the exact opposite - they have announced unilateral employment terms on their existing brokers, and new hires, in order to prevent them from leaving!
Some advisors at Bank of America Merrill Lynch's U.S. Trust unit recently received an ultimatum - a demand that they sign a new agreement that would effectively sideline them for up to eight months if and when they decide to leave the firm or else risk losing not only their 2010 bonuses but their jobs, too.
That's the ticket! We can't recruit brokers, so lets make sure the ones we have do not leave. Lets force them to give 60 days notice of termination, with a 6 month non-solicit of their customers! Not only does this move raise employment law questions, contract questions, and more, it raises questions regarding the Broker Recruiting Protocol and a potential breach of the agreement with 450 other brokers firms.
The Protocol was put into place to stop all of the lawsuits between firms when a broker moved. Firms were spending tons of money suing each other over recruiting and solicitation of clients. Three firms created and signed the Protocol, which is in essence an agreement between the firms to allow brokers to solicit customers when they leave, provided the provisions of the Protocol are met. Bank of America acknowledges that its Merrill brokers are covered by the Protocol, but continues to insist that its US Trust brokers are not.
How Bank of America intends to compete in an industry where over 450 of the firms have signed onto the Protocol remains a mystery, but this latest move is the icing on the cake. Brokers are aware of the existence of the Protocol, and in considering a move, factor the Protocol into their decision making. It obviously makes a significant difference if the new firm is part of the Protocol, as it makes the transition easier, and gives the broker a measure of comfort knowing that he will not be sued if the new position does not work out, and he wants to leave in a year or two.
But now US Trust, which is not part of the Protocol, and already has problems recruiting, has make the situation significantly worse. Any broker who is considering a move to US Trust is going to have to consider that once he goes there, he can never leave, no matter what happens - because if he does leave, he will lose his clients.
A two month garden leave plus a 6 month non-solicit is draconian. Even Bank of America can convince clients not to leave the firm if they get an 8 month head start.
Related Stories:
Prickly BofA slaps "garden leave" restrictions on advisers
US Trust Asks Employees to Confirm Broker Protocol Does Not Apply
BofA to Advisors: Take it Or "Garden" Leave It
BofA Forces "Garden Leave" on Brokers After Defection
