Unhappy financial advisors looking to change brokerage firms may find another reason to switch with the turmoil currently plaguing the auction-rate securities market. The collapse of the $330 billion auction-rate market has brought many investor lawsuits against brokerage firms, alleging deceptive marketing of auction-rate securities as safe alternatives to cash. Brokers may be able to convince their clients, who are upset over their frozen assets, to leave with them and that their firm is all to blame for selling them supposedly safe products. However, angry investors may be hard-pressed to trust their brokers again and changing firms doesn’t mean investors will have access to their money.
Other factors motivating brokers are the large transition packages firms are offering top moneymakers. To lure top brokers from the competition, firms have offered 150% of the fees and commissions the broker generated over the past 12 months in upfront cash and there’s more if he or she meets certain asset and production goals over time.
Brokers are also rattled by the falling share prices of company stock they are holding, Bear Stearns’ near collapse a month ago, and the massive write-downs financial service firms have taken because of U.S. sub-prime mortgage exposure. Loyalty is running short and brokers are looking for better deals at other firms even though brokerage firms across Wall Street are facing similar issues.
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