EXCLUSIVE: Merrill’s New Pay Plan Raises Bank-Referral Requirements
Merrill Lynch is keeping the payout grid for its brokers unchanged in 2017 but has doubled the number of customer referrals they must make to its parent Bank of America to avoid a penalty, according to two sources.
The new compensation plan, unveiled Tuesday afternoon to Merrill’s almost 14,500 brokers, contrasts with the higher production hurdles that rival Morgan Stanley built into its 2017 plan. The Merrill grid retains its 11 production breakpoints with payouts ranging from 35% for production of under $250,000 to 50% for generating $5 million or more of fees and commissions.
To avoid having their payout percentage clipped by 100 basis points, or 1%, however, Merrill brokers must refer at least two clients to Bank of America, double last year’s requirement. The referrals do not have to result in an actual sale or account opening at the second-biggest U.S. bank company.
The penalty will directly hit the paychecks of brokers who produce less than $350,000 of fees and commissions, while higher-level brokers will suffer the 1% hit in a deferred portion of their pay.
Doubling down on the referral quota comes as bank-owned brokerages continue their aggressive push to cross-sell products and services between bank and brokerage clients, notwithstanding the fake-account scandal that is rocking Wells Fargo Corp., the fourth-largest U.S. bank company.
Under the Department of Labor fiduciary rule scheduled to go into effect on April 10, Merrill is encouraging brokers to refer clients who do not want fee-based advisory accounts, or would not be well-served by them, to open accounts at the bank’s no-frills Merrill Edge unit. Referral of Merrill Lynch clients to Merrill Edge self-directed accounts or the firm’s Guided Investing ‘robo’ platform will qualify toward the quota.
Merrill has also raised the new-assets target that brokers must hit to qualify for a bonus it calls the “Strategic Growth Award.” Client assets in investment portfolios, together with loans and other liabilities at Merrill or its parent bank, must grow by at least 10% from the prior year to qualify for the bonus, the sources said. The bonus adds at least .10% of production to brokers’ pay.
Under the 2016 comp plan, the growth hurdle was 7%. The tweak returns the asset hurdle to where it had been in the 2015 plan.
Merrill’s decision to leave its core compensation grid unchanged contrasts with its decision last year to raise production hurdles for any broker bringing in less than $1.5 million for the year.
UBS last summer told its brokers that it would adjust its payout percentage higher in 2017 to brokers who produce $1 million or more.