Corporate & Securities Law

Wachovia Stops Offering Profit-FormulaTransition Deals And For All Recruits Now Factors In Trailing 3-Month Production

By James Eccleston

Wachovia has stopped offering profit-formula deals and has tightened up on recruiting offers according to an InvstmentNews article published last week. Wachovia Securities last month stopped offering recruitment packages to potential recruits to its profit-formula platform.

Profit-formula representatives are employee brokers who work in branch offices of Wachovia Securities.  They pay a pro-rata share of branch expenses in return for a higher payout.

The profit-formula platform, according to recruiters, was a great recruiting tool for Wachovia, especially for large producers, because they got the best of both worlds - being not only independent, but also having the support from a large firm.

Only brokers producing $1.25 million, or teams doing $1.75 million or more, qualify for the profit-formula program.  Payouts start at 80%, recruiters said, a bit lower than other independent firms where reps typically got 90% or more of their production.  However, the profit-formula recruitment offers were a little lower than Wachovia's regular package.

The end of the recruitment deals has sparked some speculation that Wells Fargo might want to get rid of the profit-formula platform entirely, which could lead to an exodus of big brokers.  That said, Finet is still recruiting brokers to the program.

In a separate note, Wachovia has tightened up on its recruiting offers by factoring a broker's trailing three-months' production into the deal. The firm is looking at a recruit's trailing three-months, and multiplying by four to project the next year, recruiters said. If that figure is less than 85% of the actual trailing 12-months, Wachovia will use the lesser amount as the basis of the deal.

Recruiters say that other firms are not yet using trailing three- months' production in setting recruitment deals.  But, everybody is looking at the trailing three-months, not necessarily to calculate a deal, but trying to understand the nature of the business they're getting into, according to a recruiter.

SNSFE assists brokers in negotiating the legal agreements backing up transition deals, including the employment agreement, the promissory note and any ancillary agreements.  Feel free to contact attorneys at SNSFE.

Source:  InvestmentNews

Full post as published by FinancialCounsel on April 20, 2009 (boomark / email).