Merrill Sticks with Recruiting Freeze, Brokers Hit Growth Numbers
Merrill Lynch Wealth Management President Andy Sieg said Wednesday that his carrot-and-stick regimen to motivate the firm’s 14,700 advisers to grow their practices is “humming,” with the Thundering Herd on pace to add 47,000 new household accounts in 2019.The average Merrill Wealth broker will sign six new households based on year-to-date numbers, he said, a metric that nets down to four when accounts that leave are factored. The total is well above the 0.5 net new households Merrill brokers were averaging before Sieg introduced growth incentives and penalties two years ago.
“As we go forward, we think there’s room to run with this strategy,” Sieg told investors at a financial services conference in New York sponsored by Morgan Stanley. “We think we can move well beyond six new households per financial advisor on average.”
His remarks raised speculation that Sieg will raise the bar on the “flexible grid” payouts brokers receive for hitting or missing new-account and new-asset targets, as he did in this year’s compensation plan.
Brokers in 2019 must generate six new household accounts over $250,000 to qualify for an extra 100-basis-point payout on revenue produced, up from a five-account target in the 2018 plan. To avoid a 100-basis-point cut, they must bring in a minimum of four new accounts, up from three last year.
Merrill has not made final decisions on its 2020 compensation plans, said Jerome Dubrowski, a company spokesman.
Sieg, who was promoted to Bank of America’s management committee in December, said that advisors and their managers are embracing the growth challenges—which also include new-asset targets that can add or detract another 1% from their payout formulas—out of self-interest, because fees throughout the wealth management industry are under pressure. (The average fee-based account at Merrill has fallen to about 0.90% to 0.95% of assets, Sieg said.)
“We are reminding financial advisors that if you’re not setting out to double your asset base over a five-, six-, or seven-year period of time, you’re not going to like what your business looks like personally,” he said, noting that the firm also has changed performance objectives for managers to align with growth. “Brokers see that their managers have skin in the game.”
Merrill advisers are growing their practices without sacrificing size, he said, noting that the average new household account is around $1.4 million. Forty-seven percent of total client balances at Merrill Lynch Wealth, Merrill Edge and Bank of America Private Bank (formerly known as U.S. Trust) derive from customers who keep $10 million or more in Bank of America investment accounts, Sieg said. (Merrill Lynch Wealth does not pay advisors on accounts under $250,000.)
Morgan Stanley Wealth Management President Andy Saperstein on Tuesday similarly touted the profitability of servicing the very wealthy, saying 82% of wealth-client balances come from people with $1 million accounts at the company and more than 40% from those with $10 million.
Both executives credited new technology with mechanizing advisors’ ability to service more accounts (software has shaved average prep time for a quarterly high-net-worth client review at Merrill to less than ten minutes from half an hour, Sieg said).
Better advisor productivity attributable to the new technology and a shift to centralized investment management platforms for client portfolios have reinforced the firms’ decision to cut back on expensive recruiting of experienced brokers, Sieg and Saperstein said.
Customers suffer when advisors jump to new firms, both executives say, while recruiting deals erode profitability.
“Eighteen months ago we stepped back from competitive recruiting in the marketplace,” Sieg said. “That remains our position, and it will remain our position in the future.”
Merrill will grow its brokerage force by about 1% annually through trainees, many of whom may first work at Bank of America’s no-frills Merrill Edge brokerage business, Sieg said. About 3,500 trainees are currently in the program, though graduation rates are falling due to performance hurdles that were raised last year.