From the November 2006 issue of Research Magazine • Subscribe!

A.G. Edwards Rolls Out Referral Bonuses

Financial consultants working for A.G. Edwards are now eligible for bonuses worth up to $50,000 for referring a successful recruit to the St. Louis, Mo.-based brokerage. And, in a separate move, the broker-dealer is considering the need to switch more branch managers into salaried positions instead of paying them as consultants.

To receive referral bonuses of $25,000 or less, the FCs must find recruits producing $350,000 or better. The consultants get as much as $35,000 and $50,000 respectively if the recruits they refer to A.G. Edwards are at least $550,000 producers and $800,000 producers. Half the bonuses will be paid in cash immediately, with the other half being paid in restricted stock after the successful completion of a recruit's first year with the firm.

Analysts say the plan is part of A.G. Edwards' attempt to improve its headcount, which has declined to 6,666 as of Aug. 31, down 158 from a year ago. The broker-dealer also may be working to form new relationships with recruiters in order to possibly hire as many as 1,000 or more trainees a year, according to an Oct. 9 report by Michael Hecht of Banc of America Securities.

"To be eligible for these [referral] awards, an employee must recruit a transfer FC whose production level meets or exceeds one of our three recognition levels," a company spokesperson says. "We believe this is a good way to energize our recruitment efforts while attracting transfer FCs that share our client-first philosophy."

About 25 percent of its existing FCs are in A.G. Edwards' three recognition levels, meaning that they have $350,000-plus in yearly production. That leaves the majority of FCs with production levels below $350,000.

As of June, A.G. Edwards' FCs had an average production level of $453,000, Hecht says, putting the firm right above the average production of Wachovia's reps. In August, the average amount of assets under management per advisor was $53 million, a year-over-year increase of 6 percent.

To encourage higher production and grow assets, A.G. Edwards formed a joint venture with Wells Fargo to originate and fund mortgage loans for its clients. According to Hecht, FCs used to get a $200 finder's fee from the company's previous mortgage partner. Now, the new fee can be as high as 30 basis points per loan, the analyst says.

In mid-September, A.G. Edwards announced that the brokerage will introduce a new bank-deposit program later this year with up to $1 million in FDIC insurance coverage on cash deposits, competitive interest rates and the opportunity to earn higher interest rates based on account type and household asset values.

At the branch level, the broker-dealer would like some managers to focus more on branch operations, helping FCs grow their production with such programs. It may move 5 percent more of them to salaried positions, so they are no longer responsible for running a book of business.

"Given the growing regulatory and supervisory requirements for our branch managers, we will continue to look at opportunities to compensate managers in our larger branches using a salary-based approach that includes incentives pegged to the overall profitability of the branch," a spokesperson says.

"This is not a new program. Already 10 percent of our managers are compensated in this manner, and we will continue adding participants as turnover occurs and circumstances allow. We still believe in the producing branch manager approach and, given the location of many of our branches, anticipate the majority of our managers will be compensated in that manner going forward."

The company also may pair back the size of its branch network, which includes 744 branches, Hecht says.

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A.G. Edwards Referral Plan

Experienced financial consultants will get the following bonuses for their referrals of successful recruits; half is paid upfront in cash and other half will be paid in restricted stock at the end of the recruit's first year:

o Up to $25,000 for a recruit producing at least $350,000 a year (Crest Club)

o Up to $35,000 for a recruit producing at least $550,000 (President's Council)

o Up to $50,000 for a recruit producing $800,000 (Chairman's Council)

Source: Company reports

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Advisor Headcount and Sales

(as of 2Q'06)

BDFAs/FCsNet Rev. per FA

Merrill Lynch15,520 $785,000

Smith Barney/Citi13,117$607,000

Ameriprise12,372$664,000

Morgan Stanley8,179$686,000

Wachovia10,514$452,000

UBS7,299$620,000

A.G. Edwards6,745$453,000

Raymond James4,852$378,000

Source: Banc of America Securities

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