Merrill Sticks to Hiring Novices, Freezing Out Veterans, Staying in Protocol

A senior Merilll Lynch executive on Wednesday put some numbers to the wirehouse’s watered-down recruiting strategy, saying it is keeping costs in control without sacrificing revenue.

Merrill added 221 new advisors to its Thundering Herd ranks in 2019, less than the 250 to 300 it hired before instituting a freeze on hiring experienced brokers from other firms three years ago, according to a senior executive who spoke on condition of anonymity.

The new brokers are less expensive, he added, with three-quarters of them (168) joining Merrill’s Accelerated Growth Program (AGP) that targets brokers with two-to-ten years of experience, and the rest (53) working in ”community markets” that are smaller than the average Merrill community and are far from Bank of America branches. (Merrill recruited 98 AGP brokers in 2018, its first full year of existence.)

Merrill offers AGP recruits a three-year guaranteed salary matching their previous year’s earnings, plus payouts on new revenue based off the firm’s traditional grid. Since most hale from regional firms, small-office national firms like Edward Jones and independent registered investment advisors, they earned less than the typical wirehouse competitors Merrill used to pursue.

The strategy fulfills the “responsible growth” mantra of Merrill parent Bank of America, which keeps a tight focus on expenses. The experienced brokers Merrill previously competed for got cash signing bonuses in the form of forgivable loans that can be multiples of the revenue they produced in the previous year at their former firms.

The executive credited the strategy with helping Merrill report record pretax profit margin of 26.5% in 2019 and record pretax income of $4.3 billion.

He also denied speculation that Merrill will drop out of the Protocol for Broker Recruiting, which lets advisors leave without fear of being sued if they call former clients. Morgan Stanley Wealth Management and UBS Wealth Management both pulled out of the Protocol when they contracted recruiting several years ago, in an effort to keep their experienced producers from leaving.

Merrill’s “competitive attrition” has been a manageable 4% of its force of some 14,000 experienced brokers over the past four years, and fell to 3.4% in the just-ended quarter, the executive said.

Merrill, which decades ago was Wall Street’s biggest brokerage firm, also continues to develop brokers through its 43-month training program that has nurtured much of the retail brokerage industry in the U.S. The program currently has around 3,500 advisor candidates.

The Thundering Herd also is pouring money this year into a new program to upgrade the skills of its 6,500 client sales associates, the executive said. The program is likely to motivate a growing number of them to shift to becoming full-fledge advisors, he said. Merrill also is working more closely with salaried Merrill Edge brokers called “financial solutions advisors,” and expects to house around 2,000 of them in Merrill brokerage offices over the next few years.

The shifts have led some headhunters and old-time brokers to say that Merrill will ultimately adopt a salary-plus-bonus structure for all of its advisors to replace the grid-based eat-what-you-kill compensation that motivates traditional brokers. Bank of America CEO Brian Moynihan said on the bank’s earnings call Wednesday morning that he has no plans to change the compensation scheme at Merrill Lynch Wealth Management

The Merrill Wealth executive dismissed the salary-plus-bonus rumors as alarmist.

“We are very committed to maintaining our focus on organic growth,” he said. “And we want to make sure the priority of our leadership in the field is enabling and supporting the growth of our existing financial advisors. Full stop.”

— Jed Horowitz contributed to this story.