One-Third of Merrill Brokers Took Payout Cuts in First Half of 2018
(Adds details of mid-year deductions and increases in fifth and sixth paragraphs.)
About one of every three Merrill Lynch brokers failed to hit sales targets in the first six months of 2018, requiring them to pay back some of the compensation they collected, a firm official said.
The flip side of the statistic is that almost 9,800 of the firm’s 14,820 brokers kept all their pay or qualified for bonuses under terms of Merrill’s 2018 compensation plan, based on the firm’s half-year measurement.
“Two-thirds of the advisor population saw comp unchanged or better,” said Merrill Lynch Wealth Management spokesman Jerry Dubrowski.
Merrill’s unusual 2018 compensation program increases brokers’ payout—the percentage of fees and commissions they generate—by 1% if they sign up five new household accounts (or two over $10 million apiece) for the year and by another 1% for growing client assets and loans by 5% over the prior year. Hitting three new households and growing assets by 2.5% keeps payout stable, while missing both metrics reduces payout by 2%.
Merrill took its first measure of the program after June 30, and deducted money from the July paychecks of brokers who failed to grow net new assets and liabilities through the first half and/or failed to add one new household account. The deduction equaled 1-2% in their cash grid rate, retroactive to January 1.
Brokers who met the full-year hurdles as of June 30 received increases in their cash grid rates, retroactive to January 1. Those who suffered clawbacks will have a chance to recover if they hit annual goals at the end of the year.
Merrill would not specify how many brokers actually hit annual targets and received retroactive pay increases as of mid-year, and how many idled or had to give back. But the firm believes that the compensation plan is achieving its goal, Dubrowski said.
Brokers are averaging an annualized 4.6 new household accounts (2.6 on a net basis, which includes client departures) in the first half of the year, up from about 2.5 gross and 0.4 net new accounts in 2017, firm officials have said. The average size of new accounts remains above $1 million despite the sales push, they said.
Merrill has not disclosed new-asset collection results for the first six months, but the total bonus money it is paying brokers who are hitting both growth goals about equals what it will collect in penalties from underperforming brokers, the spokesman said.
The 2018 compensation plan complements a range of programs that Merrill Wealth head Andy Sieg has introduced to meet parent company Bank of America’s goal of “responsible growth.” The term is particularly nuanced for Merrill officials, who must negotiate regulators’ demand that brokers work in their customers’ best interests and bank executives’ sales growth goals.
The one-third of Merrill’s workforce that took hits to their grid payout last month—which ranges from 34% to 49% of the fees and commissions collected from customers—are, to be sure, not very happy, said several managers and brokers.
For the time being, Merrill’s competitors have not responded with plans that directly penalize advisors who fail to grow their books, and some have drawn comparisons.
Morgan Stanley two weeks ago previewed its 2019 compensation plan, telling advisors that for the time being it is using only carrots, not sticks, to induce them to meet goals. The plan focuses on getting brokers to use technology and financial plans that promote asset growth.