Merrill Raises Payouts in Retirement Transition Plan, Tweaks “Inheritor” Payoffs

Merrill Lynch Wealth Management unveiled long-anticipated changes to its account-transition program for retiring brokers on Wednesday, adding five to 75 percentage points to the payouts brokers can receive over five to seven years after selling their “books” to colleagues.

Merrill sweetened the program and made other tweaks—including guaranteeing the starting payout as a floor for age-eligible brokers in top-recognition clubs and those with at least 20 years’ experience, even if production revenue from their transitioned clients falls—to compete with improvements UBS and Morgan Stanley made in their programs in 2017 and 2018, respectively, according to a senior executive and some advisors who said they had lobbied for revisions.

Merrill executives told brokers that the new program is the only one in the industry with a fixed payout guarantee. (It had phased out the guarantee last August.)

The changes will not be effective until November 2021, which the executive said gives advisors contemplating retirement time to discuss their plans with teammates, clients and their families. The program is open to brokers who have at least five years of experience at Merrill and are at least 55, provided that the two numbers add up to 65. (A 55-year-old with ten years at the firm makes the cut, but a 54-year-old with 11 years does not.)

“We think that more than half the FAs who may have been thinking about retiring are likely to extend for at least two years” so they can participate in the enhanced CTP, Merrill Lynch Wealth President Andy Sieg said in an interview.

Like its competitors, Merrill is concerned about losing clients of retired advisors. The issue is of particular concern to Merrill and other firms that have stopped recruiting experienced brokers at the same time that they are losing veterans who take signing deals from competitors.

Merrill is deploying some of the significant savings from its retrenchment to enhance the retirement plan, which it calls the Client Transition Program (CTP), the executive said.

So-called active senior consultants in the program, who must be on an integrated team for at least a year to participate, will receive payouts of 110% to 225% of the 12-month revenue they were producing at the time they enlist, with the range keyed to production levels from under $1 million to $7.5 million and higher. With additional length-of-service and fee-based account bonuses, the payout range rises to 160% to 275% of trailing-12-month revenue.

Base payouts in the current CTP range from 105% to 150%, rising to a maximum of 155% to 200% with bonuses.

Inheriting advisors will continue to be credited with just 50% of the revenue received from their new clients, for a maximum of eight years. But they can integrate the full amount into their production credits once Merrill recovers 80% of the money paid to the retiring broker. That means that Merrill, not the inheritor, is for the first time subsidizing part (20%) of the payment.

The firm also is loosening strictures on the ability of $5-million-plus producers to sell some of their book to one or more team members before fully entering the program, which lasts five years for brokers with $2 million of production or below and extends to seven years for those over $2 million.

A 56-year-old Merrill Private Wealth broker on the East Coast said that the new features should lead to fewer departures by top advisers eager to monetize their books. Merrill has lost dozens of brokers this year who took  recruiting checks from competitors out of fear that payouts will fall during the term of the CTP or due to uncontrollable factors like market declines or the ability of inheriting advisors to retain clients.

“There was always that fear about the subjectivity of the markets and its effect on your net worth, and that creeping doubt you get when a big FA leaves,” he said, speaking on condition of anonymity. “I no longer have to waste bandwidth worrying about whether I should leave.”

Merrill, which is not making any substantive changes in its 2020 compensation plan, will not require participants in the new CTP to sign additional non-compete clauses prohibiting them from contacting clients if they leave the program, Sieg wrote in a memo to advisors, taking a swipe at competitors, without mentioning names. Morgan Stanley, for example, has garden-leave requirements and bonus clawbacks for brokers who leave its transition program prematurely.

Some brokers who had been waiting months for the program, whose contours were revised several times this year, said they were disappointed it does not include forgivable loan bonuses for committing to participate, a feature in UBS’s plan, or lower age-eligibility requirements, as are available at Morgan Stanley. The senior Merrill executive said the tradeoffs come in the guaranteed payouts and the loosened payback restrictions.

Mindy Diamond, an industry recruiter based in Morristown, New Jersey, who has hired advisors away from Merrill Lynch, said that the payout amounts in the program appear to be “very compelling” and competitive with signing deals they could get by jumping. She warned inheriting advisors in all firm programs, however, to be aware of strict non-solicitation clauses on inherited accounts should they leave.

The issue of retaining aging advisors’ clients is a demographic challenge throughout the wealth management industry, where the average age is 52, according to consultant Cerulli Associates.  The average age of brokers at Merrill’s core wealth management units (excluding trainees and BofA’s discount Merrill Edge unit) is 50, according to the senior executive at the firm.

Almost 41% of wirehouse advisors plan to retire and transition their businesses within the next ten years, Michael Rose, Cerulli’s associate director of wealth management, said in a report released this week, and broker-dealers are working hard to “operate effective business succession programs for retiring advisors.”