Observers at odds about the JPMorgan's ability to keep Bear's big producers. JPMorgan Chase is taking steps to retain Bears Stearns ' private-client advisors in the wake of its bid to acquire the firm. Industry observers are divided in their views of the likely effect of the offer. Some say it's well crafted and probably enough to keep most brokers in place; others see many top producers bailing out in search of better deals that include opportunities to replenish deferred compensation caches devastated in the recent crash of Bear Stearns' stock.

Bear Stearns brokers who bring in more than $500,000 a year in commissions and fees will be offered the equivalent of 100% of their annual sales as a bonus for staying, with 75% of it in cash and 25% in JPMorgan stock; those who bring in between $250,000 and $500,000 will be offered the equivalent of 50% of their annual production, with half of it in cash and half of it in JPMorgan stock. Brokers who bring in less than $250,000 simply won't be offered bonuses, according to JPMorgan.

Just enough, maybe

Top producers will additionally get up to 100% of their trailing 12-month production over a three-year period.

This development follows JPMorgan's recent pledge to acquire 39.5% of Bear Stearns in an all-stock transaction for $10 a share -- up from its 16 March 2008 offer of $2 a share to acquire all of Bear Stearns. A year ago, Bear Stearns' stock was trading at about $150 a share. JPMorgan's move on Bear Stearns, backed by a pledge from the Federal Reserve, came after Bear Stearns told investors -- prompted to withdraw investments out of concern for Bear Stearns' exposure to mortgage-backed securities -- that it couldn't immediately cover redemptions.

Noting that Bear Stearns' 550 brokers see average annual sales in excess of $1 million a year (compared with the wirehouse average of about $700,000 a year), the offer will probably be enough to keep most brokers in place, according to Mark Elzweig of Mark Elzweig Company, a New York-based executive-search firm.

"When you take over a firm, you don't have to offer what the market offers, you just have to come close," says Elzweig. "I think this deal will be well received." Besides that, he adds, the general payout on revenue for Bear Stearns brokers is 50% compared with the wirehouse average of about 45%.

Elzweig says he has heard talk on the street of Bear Stearns brokers looking for 200% bonus, but he doesn't think many of them are actually getting such offers. Signing bonuses of 120% to 140% are likelier outcomes -- and have to weigh these bonuses against the risk and bother of re-papering their accounts, he adds.

An industry observer who asked not to be identified by name, gender or location agrees with Elzweig, particularly on the power of JPMorgan's offer in light of the risk of moving their books.

"A lot of these guys are elite brokers [who want the] freedom to run their businesses the way they have to [in order] to serve their clients," the source says. "Some of [them] just aren't wirehouse material -- and so where are they going to go? Lehman? No."

(In the wake of JPMorgan's initial $2-a-share offer for Bear Stearns, Lehman Brothers was singled out for several days as another firm in danger of collapse. Lehman has been viewed in a more favorable light since it reported better-than-expected earnings last week.)

Culture schmulture

But Mindy Diamond, president of Diamond Consultants, a Chester N.J.-based recruiting firm that specializes in placing financial advisors, disagrees with Elzweig and the unnamed source on several counts.

First, big Bear Stearns producers are getting 200% signing bonuses. "Even 250%," she says. "I know; I'm working on these deals on a daily basis."

Second, although Lehman is an unlikely destination for Bear Stearns brokers, it's not because of doubts about Lehman's stability. Rather Lehman wants advisors with pure-play ultra-high-net-worth books of business. Though Bear Stearns' private-client business is a high-end outfit, its brokers' individual books "tend to be all over the map" in terms of client size, says Diamond.

Meanwhile Goldman Sachs is an unlikely destination for Bear Stearns brokers for cultural reasons, according to Diamond. "Goldman has very botton-down culture; Bear Stearns has a 'roll-up-the-sleeves' culture," she says. "Some [Bear Stearns] are used to going into Steve Dantus' office and putting their feet up to discuss investment ideas; you don't have that atmosphere at Goldman."

Dantus is head of Bear Stearns Private Client Services group.

So, for Bear Stearns brokers bound and determined to up stakes despite the offer from JPMorgan, the wirehouses -- Merrill Lynch, Smith Barney, Morgan Stanley, UBS and Wachovia -- in addition to the brokerage units of Credit Suisse and Deutsche Bank are in fact the likeliest destinations for itchy-footed Bear Stearns brokers.

"A year ago if you approached a top producer at Bear Stearns about going to [a wirehouse] it wouldn't have flown," says Diamond. "When you talk to them now, you get a very different reaction."

Shoemaker's children

And that's mainly because Bear Stearns advisors have seen their company-stock holdings plummet in value over the past 12 months.

"Brokers are famous for being like the shoemaker's children who go without shoes: they preach diversification, but they often don't practice it themselves, "says Diamond. "Company culture is important, but financial security is more important, and now -- with some of them seeing their retirement savings and college-funds way, way down -- that's what they're thinking about."

Last week Morgan Stanley pulled in a dozen brokers from Bear Stearns.

Bear Stearns brokers also have to consider the likelihood of fundamental change taking place once JPMorgan takes over.

Noting that JPMorgan has nothing in its private bank or retail businesses comparable to Bear Stearns' private-client unit, JPMorgan's CEO Jamie Dimon told Bear Stearns brokers earlier this week that would continue to function as a standalone unit.

"But advisors know that promises aren't always kept," says Diamond. "Just talk to brokers from Advest or Legg Mason or Piper."

(Merrill bought Advest in 2005; Citigroup folded Legg Mason's retail securities business into Smith Barney in the same year; UBS bought Piper Jaffray's brokerage in 2006.)

Meanwhile Elzweig, who characterizes JPMorgan's proposal to Bear Stearns brokers as a "very good offer," says it remains to be seen whether it's enough to retain the very largest producers or advisors who -- for whatever reason -- "are already on the move." -FWR

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