Broker Recruiting Not a ‘Good Formula’ for Clients, Shareholders or Firm: Merrill’s Sieg
Merrill Lynch Wealth Management President Andy Sieg reaffirmed on Monday the firm’s intention to stay out of the veteran broker recruiting game, noting he and other senior executives “don’t think it is a good formula for clients, shareholders or the firm overall.”
Merrill’s decision to stay on the sidelines comes as its competitors are engaged in a “very active recruiting environment right now,” Sieg said.
The increasing competition has come at Merrill’s expense in some cases as the firm continues to see a steady stream of exits of veteran producers with a number of high profile departures over the past year-and-a-half as some have voiced frustration with the firm’s growth push and the bank’s increasing influence. Three teams with a combined $12 million in revenue left for a competitor on Friday alone.
Merrill also saw several departures this year among its ranks of around 105 market executives, including four who left in a week’s span around the Memorial Day holiday. The exits followed a year in which the bonus pool for market managers was cut by around 30%.
Sieg did not discuss attrition rates, which officials have said have been fairly consistent year-over-year at around 4% among brokers and 5% to 10% among management ranks.
But in touting the better economics of a home-grown force, Sieg pointed to Merrill’s declining promissory note balances, a measure of how much it owes newly recruited brokers in forgivable upfront loans. Loan balances plunged nearly 47% to $588 million at the end of 2020 from $1.1 billion at the end of 2017 when Merrill halted veteran broker recruiting, as AdvisorHub previously reported.
“Most of our competitors have actually seen those levels of loans increasing in recent quarters,” Sieg said without identifying any of his rivals by name. At Morgan Stanley, which revived its broker recruiting after a similar pause in 2017, those loans climbed back above $3 billion last year.
The savings had been invested back into the advisor development training program where Merrill expects to see a better return on its investment, Sieg said. The firm two weeks ago unveiled a new training program that aims to mint around 1,000 new advisors per year from a pool of salaried, bank-based Financial Solutions Advisors who are already licensed at Merrill Edge.
The new program should help the bank grow its force of around 20,000 combined core Merrill brokers, FSAs and around 500 private bankers by “low single digit” percentages without relying on experienced broker hiring, Sieg said.
The new 18-month Advisor Development Program could eventually have graduation rates as high as 80%, while Merrill’s old program had been “inefficient” and often resulted in success rates of just 20% after five years, he added.
Sieg said Merrill will continue to hire through its Accelerated Growth Program, which targets novice brokers at other firms and offers them a guaranteed annual salary supplementing their grid-based payout. That structure means the cost does not boost the upfront loan balances.
Sieg reiterated that the firm will also selectively hire some veteran brokers in key markets such as Florida, but assured that Merrill “will maintain great discipline around that,” and it would be “marginal against the backdrop of a 20,000-advisor business.”
To be sure, the training revamp has signaled a culture shift, according to veteran Merrill managers and consultants who said that drawing from a pool of bank-based brokers who are referred from the bank resembles a model more akin to J.P. Morgan’s Chase Wealth Management or a discount brokerage rather than the entrepreneurial “thundering herd” of the earlier generation.
Sieg, however, touted the virtues of the bank-brokerage combination for its core wealth business. Merrill has 4,400 brokers who are generating more than $1 million per year in annual revenue, up from under 1,200 in 2009, prior to Bank of America’s acquisition of Merrill Lynch.
There are also 185 brokers generating more than $5 million in revenue, up from 14 in 2009, he said.
“By any analysis, this is a powerful platform to serve clients and to build advisor businesses, and that’s a key part of this growth story,” Sieg said.