2022 Comp: Merrill Sweetens the Pot for Brokers Taking On Defectors’ Accounts

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

U.S. banks see wealth management boom on borrowing, new assets

Big U.S. banks’ wealth management businesses put in another stellar performance in the third quarter, buoyed by record levels of new money flowing into accounts and surging demand from clients to borrow against their investment portfolios.

Morgan Stanley Inc (MS.N), JPMorgan Chase & Co (JPM.N), Bank of America Corp(BAC.N), and Goldman Sachs Group Inc.(GS.N) each reported double-digit growth in wealth management loan balances and revenues this week.

While the COVID-19 pandemic devastated large chunks of the economy and put millions out of work, extraordinary government measures aimed at mitigating the economic blow have also boosted the fortunes of the wealthy by pushing down interest rates and driving a massive stock market rally.

Global financial wealth soared to a record high of $250 trillion in 2020, according to a June report by Boston Consulting Group.

That has increased demand for money managers, increased the value of assets managed by these brokerages, and made it more appealing for customers to borrow.

“At the high net worth end of the spectrum, lending products have been very healthy and you’re seeing that at firms like Morgan Stanley where wealth management loan balances are up over 30% year over year,” said Devin Ryan, an analyst at JMP Securities.

Morgan Stanley’s wealth management business reported revenues of $5.935 billion, up 28% from last year. Wealth management loan balances reached $121 billion, up 33% year on year, mostly from clients taking out mortgages and borrowing against their investments.

A booming area of lending for wealth management brokerages, so-called securities-based loans or lines of credit, allow clients to borrow up to a certain percent of the value of their investment accounts to spend on anything except more securities. As those investment accounts have grown in value, so have loans.

Bank of America’s Merrill Lynch Wealth Management reported record revenues of $4.5 billion, up 19% over last year, while loan balances grew 10% to top $133 billion.

At JPMorgan’s asset and wealth management business, revenues were 21% to $4.3 billion, while average loans rose 20% from last year.

Both Bank of America and JPMorgan said the primary driver of loan growth was securities-based loans, followed by mortgages and custom loans.

Morgan Stanley, which gets around half of its revenues from wealth management, said net new assets rose by 89% to $135 billion in the third quarter from the prior quarter, helped in part by the acquisition of a group of retirement advisers that brought $43 billion in fee-based assets to the bank.

Bank of America reported that, over the past year, it has brought on more than $112 billion in net new assets across its global wealth management business.

Merrill Lynch also added 4,200 net new households, the bank said.

Goldman Sachs, which has a smaller wealth management unit catering to the extremely rich, said wealth management net revenues jumped 40% from last year to $1.64 billion, while loan balances were also up 40% to reach $42 billion.

JPMorgan does not break out net new assets for its asset and wealth management business.

Original article: Reuters

Morgan Stanley Poaches Billion Dollar Advisors From Citi

Morgan Stanley landed a team of seasoned, high-producing advisors—the latest big recruiting move amid a competitive market for elite talent.

The firm’s newest hire, The Hanes Haber Group, came from Citi Personal Wealth Management, a unit of Citigroup. The group’s namesakes, advisors Robert Hanes and Josh Haber, are industry veterans based in New York.

Joining them in the move to Morgan Stanley are advisors Adam Wood, Dennis Lee, Erez Avidan, and Dillon Walker; financial advisor associate John Vigh; and client service associates Brandon Lyons and Anchal Rana.

That group had approximately $1 billion in assets under management and $8.9 million in annual revenue, according to a source familiar with their move.

The team’s profile, still available on Citi’s website as of Friday afternoon, listed several additional team members who appear not to have joined Morgan Stanley. They are wealthy advisors Damian Pereira, Gonzalo Blanco, Lisandro Enferri, Mariano Pinto, Peter Nielsen, and Timothy Shaw.

A spokesperson for Citi declined to comment on the matter.

Haber joined Citibank’s high-net-worth platform in 1999, according to his profile on the bank’s website. Five years later, he co-founded the Hanes Haber Group with Robert Hanes.

“It was Josh’s vision to build a team of financial advisors with different core competencies to best serve their client’s needs,” the website says. “The team was developed with a core focus on financial planning and custom asset management for high net worth individuals and their families.”

Hanes started working at Citibank in 1990 as a management associate in the company’s executive training program, according to his profile on the company’s website. He became a financial advisor three years later.

Morgan Stanley left the Broker Protocol, an industry agreement that eases advisor transitions between employers, in 2017 and cut back on recruiting at the time. It’s since stepped up its efforts and picked up some notably large teams. For example, in August, the firm hired Dane Runia and his $3.2 billion teams from Merrill Lynch. Runia was featured this year on Barron’s Top 100 Advisors and Top 1,200 Financial Advisors. In February, Morgan Stanley hired ex-Merrill advisor Robert Runkle, who was on Barron’s Top 1,200 advisor ranking in 2021; his team’s assets were listed at $1.2 billion.

Originally posted on Barrons.

SOURCES: Morgan Stanley Is Asking (Forcing) Large Teams And Their Biggest Producers To Sign Retention/Retirement Bonuses

In conversations with two different sources ‘in the know,’ we’ve learned that Morgan Stanley is asking their largest producers to sign what sound, look, and smell like retention bonuses but are being sold as retirement compensation.

Here is the setup from one of our sources:

“Morgan Stanley is telling advisors/teams above $5M to take a payment of 100% of their current T12 and connecting it to their retirement deal. In other words, take about half of your retirement deal (which is 220%) now and sign this document that you are staying and keeping your business here at Morgan Stanley.”

“You can imagine what the unspoken consequences of not signing that deal look like to management. If you don’t take the cash it signals that you are more inclined to leave the firm than stay. Now you’ve got a target on your back. If you dot and I or cross at wrong you’ll get fired. That’s the intention here. So this isn’t a retirement bonus, but rather a retention scheme.”

We spoke to another source that backed up these claims. All of this is being done in a very quiet, closed doorway with the firm’s largest producers. And Morgan Stanley has set a precedent over the past year that they won’t blink in firing big producers – not just for industry violations, but rather internal firm policy violations.

As, effectively, the biggest firm on the street Morgan Stanley management can make these moves. They can put this kind of pressure on advisors and not worry about the cultural implications. Keeping it ‘niche targeted’ to its top 10% or so of producers makes it seem/feel almost like a perk.

Take a step back and consider the cost. What sounds to good to be true probably is – a financial firm doesn’t give money away for free. Think about it.

BIGGEST LOSERS! The Biggest Names In Banking And Wealth Management Are Getting Crushed

You would think that name recognition and brand value would still hold some sort of sway in this industry. The numbers tell a different story altogether.

The biggest losers when it comes to high-level talent in wealth management are some of the biggest names banking and wealth management has ever seen: J. P. Morgan, Merrill Lynch, and Morgan Stanley. All of them are taking historic talent losses and client assets are following them out the back door.

But it isn’t all about the headline. Each of those firms is ‘losing’ for very different reasons. Let’s deconstruct the dynamics of each firm.

1. J. P. Morgan – compensation and culture are the big problem here. UBS has decided to exploit those pain points for headliner Managing Directors across the country at JPM. It has worked flawlessly. Yes, recruiting deals and ongoing compensation are leading the conversation; but culture and JPM leadership being completely unable to stem the tide is a bigger issue. Outlook – systemic issues with no end in sight.

2. Merrill Lynch – a slow bleed connected to a cancerous host that is Bank of America. They changed the name to ‘Merrill’ and loaded up advisors with bank products. Every meaningful team that remains at ML is either in discussions to leave or has signed retirement deal paperwork and grinning and bearing it. Outlook – the thundering herd has been slaughtered.

3. Morgan Stanley – this story is very different than the two above. MS attrition is just that; a function of industry churn at the biggest firm on the street. Taking a closer look,
Morgan Stanley has recruited just as many teams and client assets as they’ve lost so far this year. This isn’t a culture problem or a management problem; rather an industry problem. Outlook – current talent drain will slow.

These firms are as high profile as they come and it’s a great study in culture. The way they are responding to the talent losses is very, very telling. BofA/Merrill just doesn’t seem to care, which projects institutional malaise and that the division is not integral to the larger entities’ success. JPM has no idea how to deal with what is going on at the Private Bank; which proves institutional arrogance (and incompetence). Morgan Stanley is dealing with losses by aggressively recruiting from its competitors, proving that the current trend at that firm will subside.

Three biggest losers, three different narratives, three different outcomes.

Keep An Eye On The Uptick In Morgan Stanley Recruiting; Dallas Merrill Team Another ‘Competitive’ Win

Morgan Stanley isn’t grabbing all of the recruiting headlines in wealth management these days, but their trajectory is worth noting. Their latest win in Dallas is notable given the competitive nature of the bidding versus rivals old and new.

The terms of the deal haven’t been disclosed but landing a Merrill team doing $5.5M in annual production these days is no small feat. Merrill may be the most heavily recruited ‘away’ firm on the street right now, so every ML situation is competitive.

The group that migrated to Morgan Stanley in Dallas is captained by 39-year vet John Calandro along with his brother and son, Kevin Calandro, and Rob Calandro. They manage more than $720 million in client assets and brought with them admin staff Shea Self and Jonathan Hicks as well as Redding May.

Now here is the competitive bidding part of it – this was a three-horse race. UBS and Rockefeller were both heavy contenders for this team’s services and pushed their deals higher.

A source close to the negotiations had this to say, “each firm had pushed their deals and deal structures to the limit and well past 300%, ML teams are commanding premiums right now.”

And there is the money line: Merrill teams are commanding premiums right now. Including deferred comp balances, the Morgan Stanley deal breached the 350% number. Cha-Ching!!

Morgan Stanley will continue to be aggressive and maybe the ‘belle of the ball’ for the second half of 2021. Get your popcorn ready.

Private Bankers Listen Up! The Difference Between Deals Offered By UBS And Morgan Stanley

Two firms have made the biggest impact in recruiting private bankers away from J. P. Morgan, Goldman Sachs, Bank of America, and Citi. Both UBS and Morgan Stanley have decided that recruiting a different subset of teams from firms that could be called ‘non-traditional’ is worth every dime they can spare.

So what is the difference between what UBS and Morgan Stanley are offering these teams? **a quick reminder that UBS has been significantly more successful in their pursuit of private bankers by nearly 4x versus Morgan Stanley.UBS and Morgan Stanley are near equals when it comes to product, platform, and comp grid payout. The difference lies in the valuation of the business and client relationships that private bankers have built over a number of years.

Here is the money line: UBS is offering a deal based on the gross annual revenue (think ‘scorecard’ or ‘gross credits’) of a private banker or team, and Morgan Stanley is making their offer based on the net revenue (W-2).

Let’s break it down a bit. Currently, UBS will look at a gross credits annualized report for a Goldman Sachs team and put together a 250% deal on the top-line numbers. If that number is $10M, then the deal turns into a $25M deal in an instant.

Morgan Stanley (focused on the net number) will ask that same team for their W-2’s and construct a deal based on the lowest common denominator associated with the ‘trickle down’ revenue model for a Goldman Sachs team. A $10M team at Goldman will have W-2’s that will show +\- $1M. A 250% deal based on ‘net’ numbers ends up making out at $5M.UBS = $25MMorgan Stanley = $5MThe dramatic difference in those numbers makes it crystal clear why UBS is winning private banking competitive recruitment 4-1. Evaluating competing deals that are separated by 5x generally makes the decision simple.

As of today, UBS is the clear choice for private banking teams.

JP Morgan Private Bank Source – “It’s chaos around here, nobody knows how to respond…”

Take a quick look at the latest numbers associated with transitions from one firm to another across the industry – it’s a bloodbath. J.P Morgan Private Bank and J.P.Morgan Securities are getting their collective teeth kicked in. The world’s most prominent bank is getting hammered week after week and month after month, with what looks like an accelerating pace at the moment.

Between UBS and Morgan Stanley, the predominant buyers of ‘banking’ teams in the wealth management space, JPM has lost more than $30B to UBS and another $5B to Morgan Stanley.

A couple of quotes were given to us by a current JPM private banker and a source at UBS that seems to sum up the current state of things at Jamie Dimon’s shop:

“It is chaos over here right now,” said our source at JPM, “they are trying to patch up gaping holes with the type of rhetoric usually reserved for therapy, and making monetary promises about end-of-year bonuses that aren’t attached to any guarantees or paperwork.”

“JPM management feels a lot like the end of the movie ‘Miracle’ right now”, said a source at UBS. “The US team coaches, as time wound down, couldn’t understand why the Russians weren’t pulling the goalie in the last minutes while trailing. Ultimately they realized that the Russian coaches and team were so shocked to be in a losing position that they didn’t know how to respond. That’s JPM Private Bank and their management right now, they have no idea what to do.”UBS in particular has found a silver bullet for landing private banking teams and the ‘asset transfer’ ledger is proof. They are leading all the recruiting ranking this year by a figure of nearly 4x the firm in the second position (Rockefeller).

So far JPM’s response financial response has been tepid at best. Rumor has it that senior bankers are getting promises of $100k increases in year-end bonuses and larger percentage-based salary bumps. That ain’t gonna get it, dude. The exodus will continue.

J. P. Morgan Private Bank Loses Another Team; Morgan Stanley Grabs $3B Group In Salt Lake City

Another week, another headline associated with a departure from J. P. Morgan Private Bank. David Frame, CEO of J. P. Morgan’s Private Bank, is having a really, really tough year.

The latest team to tell JPM to kick rocks hails from Salt Lake City, Utah. That effectively closes the loop on Private Bank departures across the country for JPM. Other departures have been announced in LA, Miami, Dallas, Atlanta, NYC – and stay tuned for the next three to four that aren’t far behind. You can bet your ass that David Frame and his management minions are having as many meetings as they can stand to figure out how to stop the bleeding.

The details of the Salt Lake City team that migrated to Morgan Stanley are as follows: Brian Swenson, Eric Smith, and Jesse Bohannon including staffers Melissa Sende and Charlotte Painter. They walked out with $3 billion in client assets, and have joined Morgan Stanley’s PWM division after their 90-day garden leave.

Over the past six months, if you are scoring at home, JPM is closing in on losing nearly $50B in client assets from the Private Bank. Again, executive leadership is in serious trouble. You can’t hemorrhage talent the way that’s been happening there without some level of accountability. Keep your eye on that dynamic as well.**a side note – we are chasing down the kind of deal Morgan Stanley is offering private bankers. We know what UBS is doing, but as of this print, Morgan Stanley is still offering private banking recruiting deals based on W-2 revenue. If that changes, you’ll be the first to know.

Morgan Stanley Is Missing The Private Banking Opportunity; Head of Recruiting Ben Firestein Says “Not Interested”

Several firms have decided to absolutely feast on private banking recruiting so far this year. The ranks of J.P. Morgan, Goldman Sachs, Bernstein, and Citi have been migrating to rivals UBS with a smattering finding their way to Merrill and a few others.

In fact, over the past 120 days. UBS alone has announced nearly $10B in private banking assets from J.P.Morgan and Wells have migrated to the firm. Another $5B, in that same period, has moved to First Republic and Merrill.

So where is Morgan Stanley?

In a conversation passed to us from a recruiter who asked to remain anonymous, Morgan Stanley has eschewed private banking recruitment unless the bankers have an interest in taking a greatly reduced ‘W-2 based’ deal structure. The quote we were passed from Ben Firestein, National Director of Recruiting for Morgan Stanley:

“We’re not interested in competing for private bankers at those valuations. We can’t get anywhere near those numbers.”

That begs the question, what are ‘those numbers’ that Mr. Firestein is staying away from? UBS specifically is doing deals that focus on private bankers score cards rather than their W-2 numbers. That makes the deals remarkably more lucrative than anything it’s competitors are offering. When we say more lucrative we mean 4-6 times more lucrative. A 20 year vet from a private bank would be offered a $2.5M deal from Morgan Stanley, whereas UBS is offering a $10M deal.

That’s not in the same universe, and it gives context to the language used by Mr. Firestein when he said “…not interested in competing”.

It’s an interesting calculation made by Morgan Stanley versus its rivals. Some might say that in the wealth management space Morgan Stanley may not see a meaningful rival at the moment. Wells Fargo is limping along, Merrill/BofA is a shell of its former self, and UBS is a boutique compared to the scale of MS.

Still, recruiting moves in cycles, and the numbers being put on the board at UBS won’t go unnoticed. If we had to place a bet, at some point Morgan Stanley and Mr. Firestein will change his mind.

If/when that happens, expect private banker recruiting to absolutely explode.