Merrill Lynch Wealth Management is making it more lucrative for brokers to try and retain customer accounts when advisors in their office leave for the competition, a senior executive said in announcing the firm’s 2022 compensation plan on Tuesday.
Starting January 1, Merrill is ending a penalty that was put in place in 2018 and reduced payout on accounts transferred from a departing broker by 50% for the first year and will instead pay the assigned broker on the full amount of revenue those accounts had generated, the executive said.
Merrill also widened the time window brokers have to solidify relationships with transferred clients from one year to six months, the executive said. During that year, Merrill will refrain from having the lost account dock brokers’ net new asset flows, which would hamper their ability in some instances to hit targets for bonuses. Merrill expanded the time to one year based on broker feedback, the executive said.
“Our goal is to make sure you can have confidence in retaining clients knowing you won’t be impacted by any losses for a full year, and you’ll be compensated for any effort you are putting into retaining those clients,” Kirstin Hill, Merrill’s chief operating officer, said in unveiling the changes on separate a call with brokers on Thursday, according to a person who listened to the call.
Merrill is also keeping unchanged the breakpoints in its core cash grid that pays brokers 34% to 50% of revenue but will adjust how it calculates brokers’ payout level. Under the 2022 system, brokers will qualify for their pay hurdle each month based on rolling 12-month production rather than setting payout based on an end-of-year snapshot with a mid-year look back.
The new system is more friendly for customers and regulators because it does away with the potential conflict for brokers to try to generate additional fees and commissions to hit a higher hurdle by the end of the year.
“Perceived or real, it is a concern among regulators, and we are an outlier in terms of still having that,” Hill told brokers.
Rival wirehouse Morgan Stanley, for example, put in place a rolling grid system in 2018. (Similar to Merrill’s transferred account policy, Morgan Stanley also in 2016 said it would not pay brokers on accounts transferred from defectors unless they retained at least 50% of assets after three months.)
Merrill is leaving unchanged the so-called growth grid, which was also introduced in 2018 and adds or subtracts 100 basis points of payout depending on net new assets and household growth, according to the company. Under the current hurdles, which were reduced during the Covid-19 pandemic, brokers must add a net of three households and grow assets 2.5% year-over-year to maintain their current pay.
Merrill is on track this year to pay a net $130 million in additional compensation tied to the growth grid program, the company said. Around 80% of brokers are set to maintain their current pay or receive additional compensation this year.
Merrill’s 2022 plan also maintains its team grid policy granting all members the cash grid rate of its top producer as long as the team meets a “client engagement standard.” Roughly 90% of teams have met that benchmark, which requires that 30% of the team’s clients are purchasing services from parent Bank of America or Merrill in three of the four following categories: fiduciary investment advice, trust and insurance, lending, and core banking, the same executive said.
Merrill will provide the 10% who have not yet met the standard until 2023 to do so, as well as leave all of those that qualified in 2021 as eligible for next year, the executive said.
To some brokers’ chagrin, Merrill Lynch Wealth Management President Andy Sieg, who last month telegraphed few changes, acknowledged on the Tuesday call with brokers that the firm was keeping in place a controversial 3% haircut that the firm introduced in 2019 on their production credits.
“This is a common feature across the industry in advisor compensation plans,” Sieg told brokers, noting many competitors hide similar haircuts in how they credit brokers on advisory revenue. “It helps us further invest in you and the firm.”
Hill also noted that the plan has a cap at $40,000 of ineligible production credits per year and the highest cash payout amount that a top producer could lose is $25,000.
“Certainly, you can rest assured it will be reviewed again as it was this year,” Sieg said of the haircut.
In recent months, Merrill has sought to soothe broker qualms as dozens of high-end producers have jumped to the competition. The wirehouse in August launched an eight-week campaign, tagged Project Thunder, that highlighted policy changes it was making based on advisor feedback. The changes included: relaxing the rules for onboarding clients with marijuana-related businesses, plans to increase brand advertising, and the introduction of a new mobile tool called the Mobile Advisor Experience or “MAX” that integrates several broker desktop features into one application.
Sieg told brokers on Tuesday he did not have an expectation that it would solve all of their concerns but hoped they would see it as a “downpayment” on the firm’s willingness to make changes.
Merrill has also made other changes to improve retention of clients of departing brokers, including piloting a program of “client experience specialists” who call on customers as soon as their broker leaves to introduce them to a new broker at Merrill and offer incentives, such as fee discounts, to those clients who stay behind.
The comp changes are also being unveiled on the eve of Merrill opening a new, higher-paying Client Transition Program for retiring advisors that were announced in 2019 but does not officially start until November. The program, which is open to those who are 55 years old and have at least five years of service at Merrill, has a first wave of enrollees who will start in the program next week, the person said.
Original article: AdvisorHub