Life gets tricky for the poachers

Whether Cantor will be able to carry out its intention is open to question. Unlike investment banking, where notice periods can be as little as a month, brokerage houses often tie staff in with contracts of two years or more. While Barclays Capital has been able to hire 1,300 people in seven months, Cantor may be waiting for staff to join in two years.

Cantor has signed a team from rival Prebon Yamane. However, Tony Verrier, chief executive of Prebon, said some have 30 months left to work on their contracts before they can leave. "Big guys are on contracts lasting three to four years," he said.

If lengthy contracts fail to deter rivals from poaching their staff, brokerage houses have other weapons in reserve. Loyalty bonuses, which departing staff are forced to pay back, -are common.

Solicitors say contracts at brokerage houses have also included legally dubious clauses demanding that employees inform their managers if they receive offers from a rival, as well as those requiring they pay back all bonuses received over three years, and forbidding them from working for a rival for a year or more.

When contracts are breached, brokers are quick to assert their rights in court. In 2002, Cantor Fitzgerald fought a legal battle with rival Icap, claiming Icap had encouraged three of its employees to breach contracts by leaving to work for it.

Meanwhile, Icap is embroiled in a battle with Prebon, which is reportedly claiming 2m (€2.9m) in damages after three Icap brokers reneged on their agreements to join when their contracts expired.

This makes for a complex environment in which to poach staff. Damien Lee, managing director of Search Partners, the headhunter being used by Cantor to find its new staff, said recruiting in the broking industry was a question of timing: "At the end of every two or three-year contract, there is a window of a month during which people are able to resign. If they don't, the contract automatically rolls over and you have to wait another 12 months before they can leave."

So why do brokerage houses go to such lengths to attract and retain staff? After all, people are important to investment banks. However, loyalty bonuses and three-year contracts are unheard of in banking. Why? The answer, according to industry insiders, is in the nature of the business.

While corporate financiers or equity sales people have a portfolio of important clients, brokers have individual traders or trading desks at one or two banks as clients. If the broker moves to another firm, the clients are likely to follow.

The head of fixed-income trading at a European bank said: "If our broker who works for Icap moved to Tullett, we might think about moving all our business with him."

Yet there are signs that the power of the individual is waning at brokerages. The industry is subject to consolidation: Collins Stewart Tullett is expected to complete a 135m merger with Prebon next month and last year Collins Stewart paid 251m for Tullett Liberty. Fewer houses means larger flows to the biggest houses. These benefit from increased liquidity and are able to offer better prices.

Instead of leaving it to traders to decide which brokers they work with, some banks are specifying a handful of brokers preferred by management. If a favoured broker moves to a new employer, traders can no longer necessarily shift their business to that house. As a result, Michel Everaert, global head of product marketing at brokerage GFI Group, said liquidity and technology are becoming more important than individuals and their relationships.

David Hagan, chairman of Martin Brokers, said the nature of the game had changed. "The customer base has polarised. There is a much smaller number of extremely large banks dealing in very complex products. For a broker to offer an effective service, it must have optimum liquidity in that product. Hiring one or two people and hoping client relationships will follow isn't enough any more," he said.

However, the day of the individual broker is not dead. Cantor's latest hiring boom marks the individual broker's fightback since Cantor's shift almost entirely to electronic broking in 2001. As it returns staff to voice broking, there will be plenty more battles to come.