Merrill’s Sieg: 70% of Advisors Performed at Peak Levels in 2018
More than 70% of Merrill Lynch’s “experienced” brokers outside its training program had their “best year ever” in 2018 as a result of incentives and penalties that the Bank of America subsidiary built into its compensation plan last year, the company said on Wednesday.
Merrill’s so-called growth grid that has been renewed for 2019 can add or subtract one or two percentage points to broker payouts. It was introduced by Merrill Lynch Wealth Management head Andy Sieg to reverse a paltry new-asset and new-account growth rate that the average Merrill advisor had been recording.
”The value of that [grid] is now coming through in the results, to the benefit of our clients, our advisors and the company,” Sieg told reporters after Bank of America reported that Merrill’s 2018 revenue rose 4% to $15.9 billion over 2017 while fourth-quarter net income at Merrill and U.S. Trust soared 43% to $1.1 billion.
Forty-nine percent of Merrill’s advisor workforce qualified for higher payouts based on their 2018 “growth” performance, 22% were flat and 29% suffered reduced payouts, a company spokesman said.
Merrill added 29,000 net new households last year, or an average of 4.6 new household relationships per experienced broker, compared with less than one in the approximately five years before the plan took effect, according to Sieg. At midyear, Merrill had said that one-third of its advisors were on target to have points shaved from the standard payout grid that awards them 34% to 49% of the fees and commissions they collect from customers.
A “record number” of brokers became $1 million and $5 million producers for the first time in 2018, Sieg said, and about 7,400 had their best year ever.
Merrill employed 14,796 financial advisors at the end of the year, down 42 from the end of third quarter and off 157 for the year. Despite losses to competitors of some high-end advisors at its private banking and investment group (PBIG) unit that began last January, the declines largely reflected neophyte brokers who dropped out of Merrill’s three-and-a-half-year training program, Sieg said.
The attrition rate among experienced advisors in 2018 was 2.6%. Wells Fargo Advisors, which has suffered a drain of almost 1,000 brokers in the past two years amid headlines about account scandals, said on Monday that its fourth-quarter attrition rate was .75% of its almost 14,000-broker workforce.
Sieg told reporters that Merrill remains committed to remaining in the Protocol for Broker Recruiting, which permits brokers to move to other firms with rudimentary client-contact information. Morgan Stanley and UBS Financial Services have left the inter-industry pact.
In reporting fourth-quarter results, Bank of America noted that $6.18 billion moved out of fee-based advisory accounts at Merrill and the much smaller U.S. Trust in the fourth quarter while $17 billion moved into traditional brokerage accounts.
Merrill continues to promote its investment advisory platform as its core offering, Sieg said, but the asset transfers reflect caution “on the margin” from some customers concerned about the fourth-quarter market volatility. Merrill anticipates that much of the money will move back to the advisory platform this year, and has seen early signs of that in January, he said.
The brokerage account inflows reflected money coming from new household accounts, transfers from existing clients and, to a lesser extent, retirement account money that has been moving from the fee-based platform after Merrill lifted its ban on commission-based individual retirement accounts, the spokesman said.
Sieg repeated previous comments that Merrill has no interest in introducing a registered investment advisory custody platform to work with customers of independent advisors. Wells Fargo this month activated an RIA custody “channel” in an attempt to retain brokers who were moving off of its platforms.
The growth-grid incentives have been more effective in attracting new household accounts than in increasing assets from existing customers, Sieg told reporters. But he flaunted the program’s success by saying that $25 billion of the $33 billion of new “flows” into Merrill in the fourth quarter represented new household accounts. The “lion’s share” of money in the new accounts is coming from financial industry competitors, he said.
—Mason Braswell contributed to this story.