Is NationsBank delivering enough business to the hundreds of brokers recruited over the past year and a half to work in its bank branches?
As far as the top executives of its NationsSecurities brokerage affiliate are concerned, the answer is an undeniable yes. But the point is in dispute.
Eighteen current and former brokers have filed suit against the affiliate, claiming that rosy projections given to them were grossly overstated.
They are seeking millions of dollars in damages for lost income, emotional distress, and fraud for believing the claims and taking jobs at the company.
"The bright future as painted by NationsSecurities has been exposed as a hoax," lawyers for the brokers wrote in an arbitration claim filed last month with the National Association of Securities Dealers.
Senior Officials Named
The suit also names senior NationsSecurities officials and the Dean Witter Reynolds Inc. broker-dealer.
In a prepared statement, NationsSecurities said it has not received this claim or another unrelated one recently filed by three brokers.
Thus, the company said, "it is difficult to respond to the particular allegations."
But the statement disparaged what it said "appears to be a campaign to impugn the integrity and reputation of our organization," in reference to both arbitration claims.
Viewed as Trendsetter
For banks, the question of whether or not NationsSecurities brokers are making enough money is important, because the affiliate, a joint venture of Nation's lead bank in Charlotte, and a unit of Dean Witter, Discover & Co., has been viewed as a trendsetter.
The goal is to build a network of 850 brokers for NationsBank's 1,900 branches, up from 200 when the venture was launched in 1992 and 600 now.
To attract Dean Wilier brokers and new hires, NationsSecurities did a series of "road shows" where top officials and brokers allegedly made fabulous promises.
A key selling point, according to the suit, was that the bank would give brokers so many leads that new hires would never have to make cold calls - a hated chore.
At one meeting in New York, a top performer reportedly called the venture a broker's dream and bragged of dozens of referrals a month, and $300,000 of yearly commissions.
Another broker in Tampa reportedly said he was getting two to three referrals a day, and that the average opening trade from a NationsBank customer was $40,000.
In New York, a senior official said an average performer would get $60,000 his first year, and that commissions would "take off' from there.
'In the Wrong Business'
If a broker couldn't make these numbers, he was said to be "in the wrong business."
In fact, the suit claims that "average gross production and net income ... has never come close" to what was promised.
The suit cited a company memo that reportedly said that from August to December of last year, the average new hire was barely able to cover his draw against commission, which totaled $2,500 a month in his first three months, $2,000 a month in the second three months, and $1,500 a month after that.
In 1993, more than half of the brokers recruited from Dean Witter were unable to cover their draw, the memo reportedly said. This meant they owed the firm money.
The lawsuit says that each of the 18 brokers in the claim suffered a substantial decline in earnings.
Less to Go Around
The suit cites two kinks in NationsSecurities earnings projections. First, the suit says the brokerage should have expected that tripling the sales force would cut each broker's commissions.
The suit also says the bank should have known it would have to end a hefty cash incentive plan for branch employees.
These employees were given 5% of the gross sales commissions for referrals that resulted in sales, in violation of banking guidelines and securities rules, according to the suit. .....
The ending of the program in January reportedly slowed the flow of branch referrals.
In an interview preceding the suit, NationsSecurities president, Vincent P. Walls, addressed the issue of brokers' compensation, and said they had ample opportunity to make enough money.
He said NationsSecurities' total revenues this year have averaged $8 million a month, a fifth above the level of last year, and a solid gain given lagging markets.
He declined to disclose average broker commissions. But Mr. Walls noted that most of the recruits were new to the brokerage business, and so had few clients. Over time, their client list should grow.
He also said that before the venture, NationsBank didn't have enough brokers to serve all of its customers.