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May 12, 2017

EXCLUSIVE: Merrill to Halt Conventional Recruiting, Test Salary Plan

by Jed Horowitz and Mason Braswell
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News
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Merrill Lynch
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Comments (23)
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Merrill to Halt Conventional Recruiting, Test Salary Plan

(Clarifies in 10th paragraph that early-career program participants receive a small part of their pay in grid-based compensation.)

Driven by efficiency directives from its parent bank, Merrill Lynch is withdrawing from the expensive recruiting battles for veteran advisers long waged by big firms and is piloting a program to hire less experienced brokers who are compensated primarily through salary.

As of June 1, the principal retail brokerage unit of Bank of America will stop offering signing bonuses, which typically reach high-six and seven-figure levels, to experienced brokers, according to well-placed sources at the firm and to recruiters who have been briefed by Merrill managers.

Deals in the documentation pipeline as of that date will be processed, a signal to managers to double-down on recruiting over the next few weeks and to close the deals in coming months so Merrill can boast of growth in its “herd” of 14,500 brokers at yearend, the Merrill sources said. The firm also is designing a new hiring package that managers will be allowed to offer to the rare “franchise” player from another big firm, but such offers will require heavy vetting, they said.

The recruiting pullback makes Merrill the second major firm after UBS Financial Services to curtail conventional growth-through-hiring strategies, with potential lasting effects on the worth of a brokerage career as well as on company bottom lines.

Pay consultants and firm executives have long complained that paying signing bonuses equal to multiples of the revenue that brokers produced in the previous 12 months rarely justifies itself because brokers retire, lose motivation or jump to rivals before firms earn back the bonus money through transferred customer assets and new business. Until UBS’s declaration last summer to cut recruiting by 40%, however, executives were unwilling to take the first-mover risk of losing brokers and assets to rivals.

“This is a major change,” said Mickey Wasserman, an outside recruiter in Los Angeles who works with Merrill and worries about the effects on his business.

Merrill executives internally are referencing Bank of America Chairman Brian Moynihan’s new mantra of ensuring “responsible growth,” which preaches that “not every dollar is a good dollar,” to justify the change to managers who have typically had their bonus packages tied closely to meeting recruiting goals.

To help offset the recruiting pullback and combat the chronic industry-wide challenge of replenishing an aging sales force, Merrill has launched a new program to hire brokers with three-to-eight years of industry experience who preferably have proven their dedication by obtaining a chartered financial planning or similar certification.

Dubbed PTA (Professional Transitional Advisors), the program is targeting recruits from smaller regional firms such as Edward Jones and Robert Baird, registered investment advisers, independent broker-dealers and banks, recruiters and insiders said. The program is being piloted in Chicago and a few rural outposts, and currently has fewer than 20 participants. It is expected to complement Merrill’s revived “community markets” initiative to bolster business in remote offices that have had little corporate support.

Significantly, Merrill is offering PTAs “nontraditional” compensation, comprised primarily of a salary for three years supplemented by a small grid-based payout and performance-related bonuses, said a person familiar with the program. The fledgling brokers will gradually transition to a conventional “grid” program that pays them a scaled percentage of the fees and commissions they produce.

Paying brokers salaries plus bonuses, rather than the traditional “eat-what-you-kill” production formula, is a model used at private banks such as Bank of America’s U.S. Trust division. It is also what some brokers and headhunters industywide have long feared could be adopted more widely.

“It’s the breakthrough alternative compensation strategy,” said an outside recruiter who spoke on condition of anonymity.

People familiar with the new strategies said that Merrill has also renewed support of its traditional PMD training program, with a new iteration of the three-and-a-half year program beginning in March. Together with the PTA effort, executives hope the programs can seed Merrill’s aging workforce with a new generation of brokers more amenable to working on teams and to selling the financial planning fee-based services and bank products that Merrill and its big competitors have been promoting as more sustainable than market-dependent investment advice.

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Comments (23)
  • on May 12 2017, Winston Smith says:

    Between this and Russia infiltrating the government I firmly believe Armageddon is now here. The nice thing about hiring people with 3 years experience is they do whatever management wants them to. Salesforce assemble!!

    > Reply to Winston Smith
  • on May 12 2017, John Zinson says:

    Truly the beginning of the end. Thankfully I am in retirement mode. Otherwise I’d be going independent.

    > Reply to John Zinson
  • on May 12 2017, Rand Carson says:

    Ding dong! The witch is dead! We’re all laughing in Indyland. Trump is going to lead a boom that will mirror the Reagan years, and wirehouses like ML will be increasingly irrelevant. Glad I’ve got 25-30 years to enjoy the ride!

    > Reply to Rand Carson
    • on May 15 2017, Jack Wiener says:

      if firms stop paying huge bonuses the independent channel will be able to lower payouts; you’ve got to think a few steps ahead sometimes. and I’m an independent

      > Reply to Jack Wiener
  • on May 12 2017, Tony says:

    can you imagine having 5+ years left on your ML deal? What a beat down.

    > Reply to Tony
  • on May 12 2017, Ron Edde says:

    This is not the seventh sign of the apocalypse, but it is the first sign that B of A is going to impose its will on Merrill Lynch and do what it has dreamed of doing for years, which is to compensate its “overpaid” brokers just like bankers with salaries and a small, contingent bonus. If it doesn’t work, Andy Sieg and company will reverse course exactly like the firm did recently with IRA commissions. I predict a steady reduction in headcount for Merrill over the next 12 months. If that happens, Merrill will dump this newest initiative faster than Rosie O’Donnell could sign up for a butter convention.

    > Reply to Ron Edde
    • on May 12 2017, Deeann Griebel says:

      It is nice to see an end to the front-end loans to get FAs to join ML—but, I believe the best way to ‘train” new FAs is via an “apprenticeship method” . BofA and ML have not had an apprenticeship ‘program’ in at least a quarter of a century. Well these new FAs ever ‘learn’ how to communicate with clients? How to communicate clearly duration risk vs credit risk vs liquidity risks of a fixed income portfolio? Will they understand how writing cover calls retains the downside of equity ownership but caps the upside?
      This will be very interesting to watch. I think Rod Edde is onto something when he says this experiment might be ‘dumped’ sooner than later due to a lack of true ‘educators’ that ‘train’ these less experienced FAs

      > Reply to Deeann Griebel
      • on May 12 2017, Dick Green says:

        To grow an experienced FA population need to go back to 70’s and 80’s and early 90′ before Financial Foundations and E. Stanley destroyed the Firm. There has to be camaraderie in an office, start in the bullpen, be allowed to open smaller accounts , learn from the senior guys around you. Merrill brokers were the best in the industry. You had pride working there.

        > Reply to Dick Green
        • on May 12 2017, Deeann Griebel says:

          you are 100% correct. That system worked! Understanding how financial instruments work and how to explain them to clients takes years to learn and UNDERSTAND. We need to get back to ‘those days’!

          > Reply to Deeann Griebel
        • on May 15 2017, Gonicj says:

          Was the Best Place to LEARN and WORK! Such Camaraderie and Still Ambition and Drive I left end 2004…before the selft destruction of the system

          > Reply to Gonicj
        • on May 15 2017, L Lawler says:

          Well said…lucky to have shared a trading station…makes you appreciate and not take things for granted.

          > Reply to L Lawler
        • on May 16 2017, Richard Fitzsimmons says:

          Right On!

          > Reply to Richard Fitzsimmons
      • on May 16 2017, Tony says:

        None of the brokers in an ML office are going to train their competition. That’s the inherent problem with the business model. And the guys in the office responsible for “Training” all failed at asset gathering, otherwise they’d be in a corner office or on the golf course too.

        > Reply to Tony
      • on May 16 2017, Doug R says:

        Deeann, I couldn’t agree with you more. During my 30 years in the business, I’ve watched it grow from a stock singer mentality where investment strategy was “get a hunch, buy a bunch” to the professional, highly trained, complex advisory business of today. For a long time, I promoted a “law firm model,” hiring trainees as associates until they had acquired enough business to support themselves. It’s the rare trainee that has the skill or knowledge to open accounts with $250k minimums, not to mention the quality of the advice to the client.

        > Reply to Doug R
    • on May 15 2017, L Lawler says:

      that’s funny.

      > Reply to L Lawler
  • on May 12 2017, BoyBanker says:

    Eventually Ml will transition to a salarie plus Bonus work enviroment, It will start next year and also maybe, just maybe they are setting thing up for a spin off of ML or a Sale of their International Division.

    > Reply to BoyBanker
  • on May 13 2017, B. Free says:

    Merrill has now officially become BofA. You will see a flood of senior advisors move to the RIA where they can once again take control of their own destiny. Perhaps the boards of these big banks should also review the compensation of their senior management. Compensation packages of $15, $20, $25 million for senior executives seem a bit absurd in the fiduciary environment we find ourselves in.

    > Reply to B. Free
  • on May 13 2017, Nostrodamus says:

    Another sign that 5 years from now …the Wealth Management Divisions will be comprised of 6-8 thousand HNW FAs and the rest will be salaried employees pushing Robo portfolios …and getting bonuses based on hitting challenge goals…..remember …..change is good …..yeah…..for the Big Wires bottom line (only). Read the article in this months FA Mag ….on the Wirehouse money in motion as 40% of the FA population retires …and 2 trillion plus in assets gets redistributed…..they are just getting ahead of the sea change

    > Reply to Nostrodamus
  • on May 13 2017, Joe Schmo says:

    Nobody is mentioning the next move which would be to leave the broker protocol??
    Then those fa’s are really in trouble

    > Reply to Joe Schmo
    • on May 13 2017, Deeann Griebel says:

      You make an excellent observation. Out here in Arizona I have been hearing an increasing amount of ‘chatter’ about ML and wFC leaving the broker-protocol…

      > Reply to Deeann Griebel
  • on May 17 2017, SMD says:

    Get out while you still can. The tide is turning and this will happen. This does not put clients first and kills the reason most advisors came into private client advisory.

    > Reply to SMD
  • on May 25 2017, Jack says:

    Rumor has it that to be truly compliant with DOL, all firms will eventually move to a salary model. It is better for the firms/stockholders and supposedly better for the clients. The good old days of unlimited earning potential are almost gone. Now FAs will become ambition-less office workers. Soon, however it will not matter anyway. Algorithms will replace 90% of FA/planners in the next 15/20 years, just as algorithms will replace many lawyers, cpa’s, and other white collar professional advice/research jobs that follow a logical pattern.

    > Reply to Jack
  • on Jun 5 2017, JCH says:

    During one of the market corrections, when my gross was down and my firm cut our payout and my assets were down, I entertained conversation with one of the biggest banks, trust department. They offered me a very large salary, with a potential of 25% bonus and four weeks paid vacation. They asked me about my process on and interrupted me early in my explanation. They began to tell me “how the bank builds a portfolio”. They told me I would be expected to bring my book in and set my clients up with a 3% Advisory fee and they handed me a laminated list of the “bonds of the week”.
    Enough said.

    > Reply to JCH

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