Full-Service Brokers: Free Agents

If the full-service-brokerage industry didn't have enough problems with shrinking profits, a credit crunch and chief executives getting the ax, it now has another: broker defections. The eight firms in our annual survey of full-service brokers employ nearly 85,000 brokers. With an estimated 6 percent of brokers switching firms each year, that's more than 5,000 headed for greener pastures. It could get worse: The number of brokers and advisers who want to move to another firm nearly doubled last year, to 9 percent, according to a survey by National Financial, Fidelity's trade clearinghouse. And the SEC recently proposed a rule that would make it easier for brokers to take customer information with them when they do switch.

Like other problems at big brokerages, much of the pain is self-inflicted. Some brokers are fed up with their employers cutting research departments and paring back other resources. They hope moving will lead to better service for both them and their clients. Of course, the big attraction is the chance to make big money, and firms are inundating top-performing brokers with lucrative offers — some reaching into seven figures. Rick Peterson, president of recruiting firm Rick Peterson and Associates, says that in 2007 Wachovia boosted the maximum total recruitment incentives to brokers by 17 percent and that Merrill Lynch and Morgan Stanley also boosted their offers. "Our phone rings off the wall with 'Bring me people, bring me people,'" says Peterson.

Turnover of top producers is costly. Moving a client to a new broker after his previous broker leaves can lead to mistakes, such as the new broker getting the wrong instructions, says David Carroll, president of Wachovia's Capital Management Group. "And it can be expensive to keep training people," he adds. Keeping brokers on board is especially important now for Wachovia, as it takes on nearly 6,400 brokers from last year's merger with A.G. Edwards.

Many customers follow their brokers out of pure loyalty. Katherine Roepke's longtime broker, Joe Lambrecht, set up a 401(k) plan for her fledgling Minneapolis public-relations company, met with her accountants and didn't think twice about walking over to her office so she could sign paperwork. So when Roepke followed Lambrecht from Piper Jaffray to RBC Dain Rauscher, she moved all her accounts to the new firm — even though his new office was 10 miles outside the city and Piper Jaffray charged a $125 termination fee. More than one-fourth of clients who switched last year did so because their brokers moved, according to research firm J.D. Power.

In the end, of course, both the broker and the brokerage firm matter. We can't tell you anything about your individual broker, but our annual ranking of full-service brokers can be a starting point in the search for the right firm.