Merrill Lynch last week told managers that it was offering brokers from UBS, Morgan Stanley Smith Barney, Wells Fargo and other firms an upfront cash payment equal to 150 percent of the fees and commissions they generated during the prior 12 months. The offer is limited to advisers whose performance put them in the top 40 percent of their peers, the two sources said.

Merrill previously offered brokers 140 percent up front, according to one recruiter who was briefed on the changes. The higher offer lets Merrill catch up with bonuses offered at rivals UBS and Morgan Stanley, the recruiter said, in a market environment where it difficult to generate growth organically.

More significantly, Merrill also will pay an additional 25 percent bonus after six months if brokers transfer 65 percent of the assets they oversaw at their former employer. These brokers also can receive a 50 percent bonus — half cash, half stock — after the first year of the deal if they attract 75 percent of their client assets.

These payments combined mean some brokers can take home two times their trailing-year revenue in cash after just one year, one of the most aggressive packages offered by Merrill, a veteran recruiter said.

The offer is part of a nine-year commitment, which lets brokers earn additional “back end” payments based on meeting revenue and asset-growth goals.

A Bank of America spokeswoman said the company does not comment on its compensation practices, but noted the firm continues to focus on hiring and training. “We have and continue to be a competitive but highly selective recruiter of top industry talent,” she said.

Merrill, the No. 2 U.S. brokerage with about 17,300 financial advisers, has suffered some defections in recent weeks as rivals like UBS increased their up-front bonuses to 180 percent of trailing twelve-month revenue — for those who signed by the end of last year. That was up from about 130 to 140 percent in previous months.

UBS last month announced it had hired at least 14 veteran Merrill brokers who in total managed more than $2 billion in client assets.

The competition for the relatively few top advisers, not already tied down by previous recruiting and retention packages, has been heating up in recent months, recruiters said. UBS for example was offering 210 percent deals with an eye toward luring Merrill brokers.

One recruiter said the new Merrill program, offered even as the bank parent scrambles to slash spending and repair a battered balance sheet, shows the firm is showing renewed signs of confidence.

(Reporting By Joseph A. Giannone; Editing by Walden Siew)

The St. Louis company on Wednesday said net income fell 35
percent to $27 million, or 43 cents a share, compared with
record $41.4 million, or 65 cents, a year ago.

Analysts, on average, had expected earnings per share of 43
cents, according to Thomson Reuters I/B/E/S estimates.

The second half “proved to be a challenging period for the
markets, businesses and the overall economy. Our results reflect
these challenges,” Stifel Chief Executive Ronald Kruszewski said
in a conference call with analysts.

Net revenue fell by 11 percent to $356.0 million, as Stifel,
like other brokerages, suffered the effect of fewer transactions
by cautious investors and companies. Many customers stayed on
the sidelines during the volatile second half.

Revenue from Stifel’s retail brokerage arm fell a more
manageable 5 percent to $224.5 million, as muted customer
trading cut into commissions and trading income. It was partly
offset by greater net interest income from Stifel’s bank unit.

The ranks of Stifel financial advisers rose by 52, or 2.7
percent, to 1,987 advisers while client assets increased by 8
percent to $119 billion from the year-ago period. The takeover
of Stone & Youngberg last year led to about 30 new advisers
coming on board, while adviser recruiting from rivals picked up.

Stifel’s institutional brokerage and investment banking
income sank 10 percent to $134 million, reflecting a decline in
equity underwriting, advisory fees during a challenging year-end
environment.

Fixed income brokerage trading and underwriting revenue rose
from a year ago, reflecting the acquisition of Stone & Youngberg
last year.

Stifel’s shares fell 1.6 percent to $36.01 in Wednesday
trading. They sank 24 percent last year, lagging the benchmark
S&P 500 Index, which was flat.

“It was a tough year across the Street,” Kruszewski said,
citing wild swings in stock prices, the debt crisis in Europe,
and uncertainty surrounding U.S. regulation and tax policy.

Over the first seven weeks of 2012, he said, investment
banking is off to a better start. Stifel, which priced eight
IPOs and nine follow-on offerings in the fourth quarter, has
already priced six IPOs and 36 follow-ons this year.

“Despite the market volatility of the last couple days, I
still think that the improvement in Europe and improvement in
the economic fundamentals in the United States point to a better
year in 2012 than we saw in 2011,” he said.

When LaMothe abruptly left one of the highest-profile jobs on Wall Street last May, he cited personal reasons. But in his first interview since then, LaMothe, 50, said he had “philosophical” differences with the way Bank of America Corp approached wealth management, emphasizing the goals of the bank rather than specific needs of Merrill’s brokers and clients.

“I know some people can thrive in that format, but I’m not one of them,” said LaMothe, who joined Merrill in San Bernardino, California, as an adviser in 1987 and became head of Merrill’s 16,000-strong brokerage force in 2008. “I didn’t get into the financial services business to be a commercial banker.”

LaMothe has re-emerged as an industry consultant, launching his own firm in December. He plans to identify and help companies that share his philosophy for quality over scale.

The wealth management industry is increasingly dominated by big global banks that want their armies of brokers to sell banking and loan products in addition to managing investments. While profitable for the institutions, the strategy does not always sit well with advisers.

LaMothe says brokers who are selling the entire bank – rather than being totally focused on wealth management – will not provide the best possible planning and investment advice.

The largest firms still enjoy great advantages, including scale, brand name recognition and a wide array of capabilities. But that lead could be squandered, he said.

“The strength still resides with the wirehouses,” he said, referring to the four largest U.S. brokerages: Merrill, Morgan Stanley, UBS and Wells Fargo.

“But unless these organizations find a way to deliver all these services seamlessly, and if talent continues to leave, they will lose their advantage.”

His firm, Left Hand Logic LLC, is a Bedford Hills, New York, consulting firm that will advise money managers, brokerages, technology vendors and other companies involved in the wealth management business.

LaMothe said the firm’s name derives from his habit of challenging Merrill’s brokers and managers to apply different, “left hand logic” when tackling challenges. The new firm also will serve as a holding company for investments in wealth management enterprises that share his views.

LESSONS FROM MERRILL

LaMothe had his share of challenges since January 2008 when he was tapped to lead Merrill. Nine months later, Bank of America bought a hobbled Merrill, setting the stage for one of the biggest merger integrations ever on Wall Street.

LaMothe assumed the unenviable task of corralling Merrill’s fiercely independent brokers and melding them into the North Carolina commercial bank. It was also a career-defining job, leading an iconic business that oversees $1.5 trillion in assets and last year generated $13.5 billion in revenue.

A year and a half later, he quit. For the soft-spoken LaMothe, it was the loudest splash he made during his 25 years at Merrill. Amid a chorus of brokers bemoaning the bank’s goals, his departure sparked new questions about the integration.

While Merrill Lynch and LaMothe said that brokers are not forced to pitch loans and banking products, a number of Merrill advisers complain of feeling such pressure at a company that emphasizes cross-selling, one reason many former brokers have said they left Merrill over the past two years.

LaMothe says combining bank and brokerage under one roof “makes perfect sense,” but there are limits. “You cannot pressure good advisers to sell a product: they simply won’t do it. It’s almost counter-productive.”

From his viewpoint, by emphasizing such a wide range of services, BofA only distracted Merrill executives from what he believes should be the top priorities for a brokerage – raising the quality of advisers, developing new investment tools and improving service delivery.

Managers, he said, may spend time drilling brokers on BofA’s credit underwriting standards rather than engaging in advanced training designed to improve the quality of advice.

“I’m not saying they tried to do anything untoward, but there are a lot of pots on the stove at that organization, and I was concentrated on just one,” he said.

Merrill Lynch declined to comment for this story.

LaMothe said the flood of investors leaving left Wall Street banks for independent brokers and advisory firms shows that big banks and brokerages need to do a better job of understanding and meeting client needs.

Over the past decade, LaMothe said, smaller firms gained ground on big banks through better technology, investor tools and access to fund managers and research.

Independent brokers and RIAs oversaw 35 percent of total U.S. client assets in 2010, up from 29 percent in 2007, according to the most recent Cerulli Associates study in August. Independents will boost that share to 40 percent by 2013, Cerulli estimates, while that of the “wirehouses” – Merrill, Morgan Stanley, UBS and Wells Fargo – shrinks to 35 percent.

Independent and boutique firms also have lured brokers from Merrill and its competitors. Three teams joined HighTower Advisors last year, while earlier this month a Connecticut team with $2 billion in assets joined Focus Financial Partners.

Competing banks, particularly UBS, have also poached Merrill brokers. In January alone, Merrill advisers managing more than $4 billion left – a sum that only includes advisers generating more than $1 million a year in revenue. (For more on January broker movement click on [ID:nL2E8D17OQ])

(Reporting By Joseph A. Giannone; Editing by Jennifer Merritt and Matthew Lewis)

Boston-based LPL, which sells technology, clearing and other
services to an army of self-employed brokers, reported
fourth-quarter profit of $39.4 million, or 35 cents a share,
compared with a loss of $116 million, or $1.20 a share, in the
year-earlier period.

Excluding charges and other items, adjusted earnings rose
9.3 percent to $48.8 million, or 44 cents a share, shy
of the 46 cent average estimate compiled by Thomson Reuters
I/B/E/S.

Net revenue rose 1.1 percent to $828.7 million, which also
fell short of the consensus forecast of $876 million. Among
experienced advisers, “same-store-sales” growth slowed to less
than 1 percent for the fourth quarter.

“Despite a very strong year, we experienced softness in
the fourth quarter driven by ongoing market volatility and
uncertainty in the global economy,” LPL Chief Executive Mark
Casady said on a conference call after the closing bell
Tuesday.

LPL said its clientele of individual of investors took
a more cautious view of the markets, as reflected by increased
cash holdings and fewer trades. Fourth-quarter commission
revenue fell 5.2 percent compared to the prior year period.

And though 2012 is only a few weeks old, LPL said
individual investor sentiment has showed some signs of
improving.

“We feel very positive about the beginning of this year
as a result of markets improving, and consumers feeling more
comfortable going back to their investment programs,” Casady
said.

At the same time, LPL said its expenses, which
typically fall when trading volumes fall, rose faster than
expected because of higher deferred compensation and stock-based
pay. The firm, known as Linsco/Private Ledger until its 2005
leveraged buyout, also continued investing in technology
upgrades and providing loans to brokers launching their own
firms.

Looking ahead, Chief Financial Officer Robert Moore
told Reuters expenses would likely stay close to fourth-quarter
levels for the rest of this year, though LPL expects revenue
growth to pick up, fueled by recent takeovers and recruits,
improvements to its technology and more robust markets.

Total advisory and brokerage assets increased 4.4 percent to
$330 billion during the quarter, b ut its growth in advisers
- an important barometer for LPL – was muted by its
integration of a previous broker acquisition, UVEST.

LPL said it added 172 new advisers during the fourth
quarter, offset by the loss of 124 advisers due to the UVEST
conversion. The firm ended 2011 with 12,857 advisers ,
up 3.2 percent over 12 months, fueled by 549 net new
adviser recruits .

The pipeline of new broker recruits has expanded so far
this year, Moore said, though he characterized the increase as a
return to more normalized levels. Broker movement surged in 2008
and 2009, when the world’s biggest banks nearly collapsed, and
then slowed to below-normal levels for the past two years.

The company also disclosed Tuesday that it recently
renewed a brokerage, clearing and custody services relationship
with AXA Advisors, a unit of French insurance giant AXA SA with
4,000 advisers.

Independent brokers, unlike those employed by firms
like Merrill Lynch, own their practices and pay their own
expenses. However, these brokers often keep 90 percent of the
commissions and fees they generate, compared with 40 to 50
percent at a traditional firm.

“We have a fundamental disagreement” with the Financial
Industry Regulatory Authority, said chief executive Walt
Bettinger during a winter business update for institutional
investors and analysts.

The company and its regulator are at odds, he said, over the
interpretation of a Supreme Court case concerning class-action
lawsuits and whether it takes precedence over FINRA rules.

FINRA, Wall Street’s self-watchdog, filed a complaint
against San Francisco-based Schwab on Wednesday accusing the
online brokerage of requiring customers to waive their rights to
pursue class actions against the firm, a violation of industry
rules. Schwab also required customers to agree that industry
arbitrators would not have the authority to consolidate claims
from multiple parties. [ID:nL2E8D1LON]

The waiver effectively leaves many smaller investors without
a legal process for pursuing their losses, lawyers said.
Investors with small claims, say $25,000, join class-action
suits to recover their money. Some also file FINRA arbitration
claims as part of a small group of investors, which Schwab’s
agreement would prohibit. Investors may be hesitant to file an
individual claim for a relatively small loss, lawyers said.

Schwab responded to FINRA’s action by filing a federal court
action, also on Wednesday, asking the U.S. District Court for
the Northern District of California to declare the provisions
are enforceable under federal law and recent decisions by the
U.S. Supreme Court, according to court documents.

The company, in the wake of FINRA’s action, may be trying to
deflect a perception that it is insensitive to small investors.

“We don’t want smaller clients to think they’re under some
barrier to being able to file arbitration claims if they feel
they have a viable claim,” Bettinger said. “Until we get this
resolved, we’re going to reimburse the filing fee for anyone who
files a claim.”

His plan did not appease some investor advocates. “It
doesn’t really address the underlying problem,” said Jill Gross,
director of the Investor Rights Clinic at Pace Law School in New
York. “Investors may want the ability to proceed in a different
forum and they’re deprived of that ability,” Gross said.

Arbitration filing fees, which are set by FINRA, are
determined based on the amount of an investor’s claims. For
example, a $975 fee applies to claims over $50,000 and up to
$100,000. Bettinger did not discuss details for getting those
funds back to investors.

Those fees are just “the tip of the iceberg” in arbitration
cases, said Philip Aidikoff, a securities arbitration lawyer at
Aidikoff, Uhl & Bakhtiari in Beverly Hills, Calif.

“If I’m an investor, it ends up creating a situation that
costs me money,” said Aidikoff, adding that the terms of
Bettinger’s offer are not yet clear. Expert witness fees and
attorney time are other considerations in the process, according
to Aidikoff.

“In my view, Schwab’s position is completely inappropriate,
Aidikoff said.

That position, however, has nothing to do with clients,
according to Bettinger. “This is an issue between us and our
regulator, not between Schwab and our clients,” Bettinger said.

(Reporting by Suzanne Barlyn and Joseph A. Giannone; Editing by
Jennifer Merritt, Gary Hill)

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(Reuters) – While stock prices rallied last month, small investors remain wary of jumping back into the market after years of turbulence, Charles Schwab Corp Chief Executive Walter Bettinger told investors and analysts Thursday.

As the largest online brokerage and a firm built on smaller investors, Schwab is a barometer for how most Americans feel about taking risk in the markets.

The S&P 500 Index rose 4.4 percent in January, its fourth positive month in five, yet retail sentiment was “pretty tough” and reflected a “lack of confidence,” Bettinger said during the firm’s winter update.

“From a client engagement standpoint, the markets went up, but you don’t get swings in retail sentiment with how fast the markets move in a four-week period,” he said.

Bettinger addressed a number of issues that have driven Schwab’s own stock price, including the persistent drag of low interest rates on revenue.

Schwab, which waives hundreds of millions of dollars in fees from money-market fund customers, says that will continue as the Federal Reserve commits to keeping rates low through 2014.

But the company can increase earnings in the meantime, he said, by keeping expenses down, developing new services and attracting new customers.

“We don’t need rising rates, we just need rates to stop falling,” said Bettinger. “Our true earnings potential is masked by a tough environment.” (Bettinger’s views on the Fed and interest rates in a Reuters interview Tuesday: [ID:nL2E8CVLCZ])

Schwab waived $168 million of fees in the fourth quarter. Chief Financial officer Joe Martinetto projects quarterly waivers of $165 million to $170 million this year if rates hold steady, reflecting continued growth in its money market funds.

Martinetto cautioned that Schwab has slashed expenses since 2008 to offset revenue declines but most of the easy cuts have been made. Future reductions must balance savings benefits against the potential impact on capabilities and service.

Project spending this year, he said, will fall more than 20 percent to $140 million from 2011 levels.

Among several business initiatives at Schwab is its plan to open a network of advisory offices operated by independent franchisees. Bettinger said the firm is on track to open 12 to 15 locations this year.

Since February last year, when the independent branch strategy was first revealed, Schwab has signed up only three advisers but it has received applications from some 1,700 people.

“We are very diligent to the extent we allow that business to grow,” he said.

Bettinger also disclosed that Benjamin Brigeman, head of Schwab’s flagship investor services division, is leaving later this year for family reasons.

(Reporting by Joseph A. Giannone; Editing by Gary Hill)

(Reuters) – Wall Street’s own watchdog filed a complaint against Charles Schwab Corp on Wednesday accusing the online brokerage of requiring customers to waive their rights to pursue class actions against the firm, a violation of industry rules.

The Financial Industry Regulatory Authority alleged that San Francisco-based Schwab added a new provision in October to more than 6.8 million customer account agreements that would preclude them from starting or joining class-action lawsuits against the brokerage, according to FINRA’s complaint.

Schwab also required customers to agree that industry arbitrators would not have the authority to consolidate claims from multiple parties. These types of consolidated cases are common, but typically include far fewer claimants than those in a class action court cases.

FINRA, in addition to being Wall Street’s regulator, runs the arbitration forum where customers and brokerage firms typically must resolve legal disputes. FINRA arbitration rules do not allow arbitrators to hear class action cases.

The rules also restrict brokerages from limiting investors’ rights to file cases in court in situations that arbitration rules allow, such as in class actions.

Schwab’s agreement would effectively leave investors in a bind, in which many would not have access to a legal process for recovering their losses, say lawyers.

Investors with larger claims, say $1 million, could have an economic incentive to pursue their claims in an individual arbitration case, said Steven Caruso, a securities arbitration lawyer for Maddox Hargett & Caruso in New York. But many investors with small damages, who often join together in court class action cases, would effectively have no remedy, he said.

“If you can’t get the class, it’s not economical to bring an arbitration, so you don’t do anything,” Caruso said. Schwab “was trying to get the best of both worlds,” he said.

Schwab’s revised agreement outraged many securities arbitration lawyers.

“Schwab used its arbitration provision to limit the ability of clients to bring claims they have a right to bring and to limit what arbitrators can do,” said William Jacobson, a professor at Cornell Law School’s Securities Law Clinic in Ithaca, New York. “Schwab tried to do the opposite of what they should be doing.”

The limitations on investors’ ability to consolidate claims in FINRA arbitration also drew criticism.

“I don’t think that’s fair. We’re not talking about a class of thousands,” said Constantine Katsoris, a professor at Fordham University School of Law and long-time arbitrator.

Filing some claims separately, such as related actions involving the same broker, could be inefficient and expensive, he added.

FINRA is seeking an expedited hearing before its own hearing officers, noting that Schwab continues to impose these conditions on new customers. More than 50,000 new accounts have been opened since October.

“The class action waiver will likely lead millions of Schwab customer who have received the account agreement to incorrectly believe they do not have the ability to bring or participate in class actions against Schwab,” FINRA said in its complaint.

Schwab, in response to FINRA’s complaint, filed a federal court action on Wednesday. It is asking the U.S. District Court for the Northern District of California to declare its class action waiver provisions are enforceable under federal law and recent decisions by the U.S. Supreme Court, according to court documents and a written statement from the company on Wednesday.

Many lawyers for investors, however, are pleased about FINRA’s action against Schwab.

“This is fantastic to see. Brokerage firms are trying to eviscerate the protections afforded to retail investors,” said plaintiff’s lawyer Andrew Stoltmann of Stoltmann Law Offices in Chicago. “Hopefully, FINRA has made it clear that these sorts of tactics won’t be tolerated.”

(Reporting By Joseph A. Giannone and Suzanne Barlyn; editing by Jennifer Merritt and Andre Grenon)

Since its launch in 2006, Focus has used capital from private equity and other investors to acquire 23 investment adviser teams, building a national firm in what remains a highly fragmented industry.

The new $220 million revolving bank line, which can eventually grow to $320 million, expands a previous line of $155 million, Focus said on Tuesday.

The additional money will go toward recruiting advisers, technology and other business development. Closely held Focus declined to disclose financial terms of the debt.

“This facility enables us to sustain the growth we had in this business,” Focus Chief Executive Rudy Adolph said in an interview.

Focus is one of several “roll-up” firms that are snapping up small, usually one-office wealth managers to create a larger national company that can someday go public. The New York company typically signs five to 10 deals a year.

Charles Schwab, the largest custodian to registered investment advisers, last week said it counted 57 merger and acquisition transactions last year representing $44 billion in client assets. The number of deals, assets and the average size of RIAs acquired all fell from 2010.

But Focus, which had $3 billion under management in 2006, added eight firms or teams with about $8 billion in assets last year, either by acquiring firms directly or by folding broker teams into existing practices.

“They have been having some success of late,” said investment banker Robert Martin of Echelon Partners, a Manhattan Beach, California, merger adviser specializing in wealth managers. “This new debt financing is a strong signal of how they view the market moving forward.”

The flexibility of a credit line, which lets borrowers draw down cash as they need it, combined with the additional $100 million in reserve, is an indication Focus is prepared to go shopping, he added.

The RIA business has been growing rapidly for more than a decade, and it is eating away at the once-dominant market share held by big brokerage houses like Merrill Lynch, Morgan Stanley and UBS.

Adolph predicts that the number of financial advisers exploring independence, and leaving the big national firms, will increase this year as a number of 2009-vintage retention packages start to lose their grip.

“There could be further acceleration in 2012. There’s great interest all around,” Adolph said.

(Reporting By Joseph A. Giannone; Editing by Walden Siew and Maureen Bavdek)

Raymond James on January 11 agreed to pay $930 million for a combination that would create the No. 6 U.S. brokerage, a bold acquisition whose long-term financial success will be judged largely on how many advisers stick around. [ID:nL1E8CBIC6]

The Florida-based bank hopes to win over Morgan Keegan brokers by rolling out the red carpet and promising a light touch while integrating the firms.

“We believe the advisors will value the culture at Raymond James … as highly as the retention packages,” said Tash Elwyn, president of Raymond James & Associates, a unit which employs more than 1,300 financial advisers, in a recent statement.

Raymond James has vowed to keep Morgan Keegan’s broker managers and offices indefinitely. And for the first year or so, Morgan Keegan brokers will continue doing business separately, using the Morgan Keegan name.

Other parts of Morgan Keegan, in particular its fixed-income business, initially will adopt both names in a “co-branding” arrangement, according to Raymond James Chief Executive Paul Reilly.

Reilly has said he intends to pursue “measured changes” and a slow integration. That approach might appeal to Morgan Keegan employees, but it has vexed analysts looking for a more immediate payoff.

A working group of Raymond James and Morgan Keegan executives is beginning to hammer out integration plans, a process that will intensify when the merger is completed around April 1. Raymond James Chief Operating Officer Dennis Zank and Morgan Keegan COO Patrick Kruczek are leading the integration.

Among the arduous work is figuring out how to integrate technology, operations, compliance and regulatory policies.

Merging technology systems has been a headache for other Wall Street purchases, most recently Morgan Stanley and Citigroup’s Smith Barney joint venture. More than two years since the venture began, Morgan Stanley, the controlling partner, has reported lower-than-expected returns as it spends money to resolve technology woes while combining platforms of two brokerages.

Raymond James in 1999 followed a similar go-slow plan when it acquired Roney & Co and its roughly 300 advisers. The small Detroit firm did business under its own name for several months before switching over to Raymond James, said Bill Roney, former CEO of Roney & Co and now a regional manager at Raymond James. Roney’s firm pursued the sale to Raymond James.

Roney’s operations center remained in Detroit, where employee headcount has since doubled and advisers in its legacy offices grew by half, Roney said. But the firms used the same systems, making technology integration easier, Roney said.

CHARM OFFENSIVE

Of course, Raymond James is tackling a much bigger challenge in Morgan Keegan, a transaction expected to wipe out earnings growth this year, absent any market upturn. Analysts have said retention is crucial to making the deal pay off.

Raymond James is pouring on the charm, with a trip early this week to its Florida headquarters for Morgan Keegan’s 75 top revenue-generating brokers and managers. Raymond James executives said they will tout the similarities of two firms with Southern roots and close-knit “regional” cultures. This follows a similar trip by Morgan Keegan’s 85 branch managers. Another 300 to 400 advisers will be invited to visit next month.

“They’re trying to buy time, to be able to show Morgan Keegan folks that Raymond James can be a productive place for them,” said Marty Mosby, a Memphis-based bank analyst for Guggenheim Partners.

It could be a tough sell for some Morgan Keegan advisers, though, after learning the details of the retention packages Raymond James is offering as part of the deal.

Brokers generating less than $300,000 in revenue each year receive no retention bonus package. Recruiters estimate as many as a third of advisers fall below the threshold.

And while brokers generating more than $1 million in revenue would receive a retention package equal to 70 percent of their annual production, these advisers could get double that amount by defecting to a bigger, national firm.

Retention bonuses are amounts paid by firms to brokers in order to retain them – in this case for seven years.

Raymond James is banking on its image as an alternative to Wall Street’s giants — a place where managers are accessible to rank-and-file advisers — and its promise of a smooth transition to help keep advisers in place despite its low bonus offers.

Its adviser-first approach may appeal to Morgan Keegan brokers, accustomed to a flat organization where managers have a lot of discretion.

But Raymond James also has a no-nonsense reputation, with more policies and procedures handed down by management. That means Morgan Keegan brokers may have less freedom than they are used to, recruiters said.

In the end, Morgan Keegan advisers may find the changes difficult to absorb, no matter how slowly they come.

(Reporting By Joseph A. Giannone, editing by Matthew Lewis)

Bank of America (BAC.N: Quote, Profile, Research, Stock Buzz) on Thursday said Merrill Lynch wealth management revenue fell 2 percent from a year earlier to $3.21 billion in the quarter, while total client balances — assets, loans and cash — fell less than 1 percent to $1.50 trillion.

Morgan Stanley (MS.N: Quote, Profile, Research, Stock Buzz), which owns a controlling 51 percent interest in Morgan Stanley Smith Barney, said its wealth management profit fell 45 percent to $149 million, resulting in a margin of just 8 percent. Citigroup Inc (C.N: Quote, Profile, Research, Stock Buzz) owns the rest of MSSB.

To be fair, Bank of America does not disclose detailed performance figures for Merrill, U.S. Trust or its corporate retirement services, making comparisons difficult. And Merrill Lynch declined to comment on the profit of its individual wealth businesses.

By at least one measure, Merrill Lynch had more advisers than its rival at year-end. But Morgan Stanley Smith Barney also provided an “adjusted” number that kept it No. 1.

Many individual investors pulled back from the stock market last year, anxious about the U.S. economy, Europe’s debt crisis and political tensions worldwide. The S&P 500 Index ended 2011 essentially unchanged after a roller-coaster year.

Large U.S. stocks rose 11 percent during the fourth quarter, but S&P’s downgrade of nine European nations last week shows financial markets still are not out of the woods.

Bank of America said its combined wealth management businesses reported $249 million in profit in the fourth quarter, down by 22 percent from a year earlier due to lower trading revenue, higher litigation expenses and the costs of new hires.

Net revenue fell 3 percent to $3.25 billion, reflecting lower commissions and investment banking income, partly offset by higher net interest revenue. The division attracted $6 billion of net new money, capping a year in which clients added $38 billion.

The bank said its financial adviser ranks continued to swell, up 11 percent from a year earlier to 17,308 at year-end. That figure includes at least 1,100 employees from Merrill Edge, a consumer bank-based business that caters to small investors.

Merrill also includes trainees, of which there are about 4,000 who will become financial advisers over the next several years.

Morgan Stanley’s ranks of financial advisers fell by 5 percent last year to 17,156 at year-end. If some previously uncounted Smith Barney employees are included, Morgan Stanley said its total adviser count ended 2011 at 17,649.

Using that adjusted figure, Morgan Stanley remains the largest U.S. brokerage in terms of advisers as well as in client assets.

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Largest U.S. brokerage firms: link.reuters.com/bun95s

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On average, Merrill Lynch generated revenue of $873,000 per broker in 2011, down 4 percent from 2010, excluding Merrill Edge, which caters to people with less than $250,000 to invest. Merrill’s fourth-quarter productivity was even lower at $819,000 per broker, reflecting the large number of trainee hires.

Total Morgan Stanley client assets slipped 1 percent during 2011 to $1.65 trillion at year-end as broker ranks continued to decline. The contraction reflects both the departure of brokers frustrated with the integration of Morgan Stanley and Smith Barney and the firm’s more aggressive efforts to cull lower-performing advisers.

At Morgan Stanley Smith Barney, revenue generation rose 2 percent to $755,000 per broker in 2011, while average client assets rose 3 percent to $96 million.

Morgan Stanley has promised investors that over time, Morgan Stanley Smith Barney will generate margins of 20 percent and attract $50 billion of new money each year. But last year the margin was 10 percent and net new money weighed in at $38 billion.

Brokerage is key to Morgan Stanley’s strategy; Chief Executive James Gorman wants to generate more of its money from individual investors. Nearly three years after the joint venture was formed, Morgan Stanley Smith Barney has not yet hit its stride, a combination of economic weakness, market turbulence and difficulties in merging two large brokerage rivals.

That said, Morgan Stanley remains committed to the brokerage strategy, and under its agreement with Citi it is expected to increase its 51 percent stake to 100 percent over the next several years.

“We do continue to be focused on the MSSB buy and we have a call option for 14 percent in May of this year and that’s the first thing we would look to do,” Morgan Stanley Chief Financial Officer Ruth Porat told Reuters on Thursday.

There have been questions among investors about whether Morgan Stanley, which like all banks needs to satisfy tougher global capital requirements, would postpone that step.

(Reporting By Joseph A. Giannone; Editing by Walden Siew and John Wallace)