EXCLUSIVE: Merrill to Withhold Payment on 3% of Brokers’ Monthly Production
(Adds statement from Merrill Wealth head Andy Sieg in 11th paragraph.)
Merrill Lynch on Thursday told its army of brokers that it will not pay them on 3% of the revenue they produce each month in 2019, an attempt to curb compensation growth rates that have outpaced revenue growth for several consecutive years.
To ease backlash from the most productive of its 14,800 financial advisors, the Bank of America-owned wealth management unit is capping the amount of fees and commissions ineligible for payout at $4,000 monthly, according to sources familiar with the plan.
The cap would not help brokers generating less than about $133,000 a month—on pace for $1.6 million a year—but a $200,000-a-month producer would have her 3% penalty reduced by $2,000 because of it.
A broker who generates $42,000 of monthly fees and commissions, a $500,000 annual pace, would lose credit for $1,260 of revenue and receive $505 less than currently in monthly pay at the 40% payout he qualifies for.
The restraint will put Merrill brokers in the same position as those at competitors that withhold payment for certain fees and products, executives planned to tell brokers on a late afternoon conference call to discuss the firm’s 2019 compensation plan. More than 90% of advisors who have been growing their business and qualifying for bonus payouts would not have lost pay if the constraint had been in place this year, they said.
The 2019 plan also raises the bar on the core part of Merrill’s incentive system for brokers, the “growth grid” it introduced at the beginning of 2018. The program rewards brokers for increasing customer households and assets and reduces their payout—the percentage of client revenue they collect—if their annual new-asset and new-household numbers decrease.
Instead of having to sign up three new household accounts of $250,000 or more to avoid a payout cut of 100 basis points, the number will rise to four accounts next year, the sources said. In order to receive a 100-basis-point payout bonus, the new household total has to rise from five to six accounts.
Merrill is making no changes in the net new assets and liabilities that brokers must add to avoid a payout penalty. Growth of 2.5% from the end of the previous year, to a maximum of $7.5 million, will keep 2019 payout flat. Growth of 5.0% generates another 100-basis-point jump, while payouts will fall by the same amount if the 2.5% target is missed.
To mollify Merrill’s elite advisors who work primarily with multi-million-dollar accounts and complained about having to go down-market to meet the new-household bogey, Merrill has made a concession. New accounts with more than $2.5 million will count as more than one household, ranging from a credit of two accounts at the low end to as many four on an account above $25 million.
Merrill is also adding a “high performer” award for what the people familiar with the plan admit are the small number of brokers who could potentially generate $150 million of new money or attract 30 new households in 2019. They would receive an extra 100 basis points on their standard payout.
“Our compensation plan has three key objectives,” said Merrill Lynch Wealth Management head Andy Sieg in an e-mailed statement. “Raise the bar on growth, recognize and reward our longest-tenured advisors and ensure our business is sustainable, in line with Bank of America’s ‘responsible growth’ operating model.”
Merrill’s core payout grid, which pays brokers from 34% to 49% of the fees and commissions they generate, will be tweaked upward to a maximum of 50% for brokers who generate at least $10 million of revenue. Even massive organizations such as Merrill have fewer than 20 producers in that category, according to industry officials.
Like rivals such as Morgan Stanley that are striving to retain their most experienced and productive brokers, Merrill is upgrading a “length-of-service” bonus in 2019. Those with 10 or more years at the firm and producing at least $750,000 of revenue will be awarded restricted BofA shares every five years. The stock vests over three years, down from five years currently. At the high end, qualifying advisers with 20 years of service and with average annual production of $5 million over five years would get stock equal to 15% of their production.
The new plan also pays tribute to brokers and sales associates across the productivity spectrum who refer their investment clients to Bank of America, get them to move cash into bank accounts and use financial planning and online and digital tools that the firm believes make clients more loyal to the firm.
Merrill will credit brokers’ production total with .14% of customers’ BofA checking and savings account balances if more than 40% of their clients actively use at least three of the following: trust accounts, loans, checking accounts and Merrill’s fee-based investment advisory platform. The “client engagement award” currently in place credits brokers with .04% of their clients’ bank account balances.
Client associates also will qualify for $200 for each checking account they help open, if the accounts remain for at least seven months and meet minimum funding and activity levels. The minimum standards are aimed at preventing creation of phony accounts, as happened at Wells Fargo & Co., according to people familiar with Merrill’s plan. Morgan Stanley a few years ago ended a program that paid $50 to sales associates for each client they signed up for an American Express credit card.
Merrill plans to mandate the 40% “client engagement” metric as a requirement in 2020 for advisors who want to qualify for team compensation grids, said a person familiar with its plans. All brokers on such a grid receive the same payout as the highest-producing member of their team.