Merrill to Retain Growth Penalties, Bonuses in 2019 Compensation Plan
Merrill Lynch Wealth Management will retain customer-account and asset-growth penalties and bonuses in its 2019 compensation plan, a senior executive said on Monday after the firm reported its highest third-quarter revenue since its purchase by Bank of America almost ten years ago.
Merrill’s success in incentivizing advisors and managers to grow their “books” of business since it introduced the “growth grid” last year to complement its standard compensation plan justifies continuation of the program, according to the executive who spoke to reporters on condition of anonymity.
There will be some tweaks in the growth grid, which currently increases or decreases payouts by as much as 2% for hitting or missing goals, based on advisor feedback about “operational aspects” of the program, he said.
The executive also said that Merrill has no plans to drop out of the Protocol for Broker Recruiting that makes it easier for brokers to move to rival firms, despite a slight drop in its broker count to 14,838 as of September 30 from a year earlier. Merrill’s army of advisers is less than 1% lower than a year ago.
The remarks followed Bank of America’s third-quarter earnings report. Its wealth and investment management division produced a 31% jump in net income from the year-earlier period to $1 billion, leading bank Chief Executive Brian Moynihan to call the Merrill/U.S. Trust unit “the best business in the world” on a conference call with analysts.
Revenue at the division’s core Merrill Lynch Wealth unit rose 3% to $3.92 billion from $3.86 billion a year ago largely on the back of growing asset management fees and net interest income, the company said. That, in turn, was driven by gross new household acquisition by experienced Merrill advisors that is up 87% in the first three quarters over the comparable nine-month period of 2017. The average advisor is on pace to add about 5 new households this year, up from less than one at this time last year.
Illustrating Bank of America’s push to have advisors use advisory platforms that take much investment decision-making out of their hands and to sell wealthy investors bank products, the company said that 85% of its wealth division’s revenue in the quarter came from asset management fees and net interest income, up from 83% in the third quarter of 2017.
Commission-based transactional revenue continued to fall, reflecting Merrill’s designation of its fee-based advisory business as its preferred platform for advisors and their clients.
Net interest income of $1.536 billion was up 2.7% from $1.496 billion a year ago across Merrill Wealth and its sister U.S. Trust private banking business, reflecting both rate increases from the Federal Reserve and brokers’ ability to increase mortgage loans and other bank products to their investor clients. Average loan balances across the quarter of $162.2 billion were up 4.9% from the year-ago quarter.
Despite the growth of loans and new clients, net new advisory account money at the wealth and investment management unit fell almost 64% to $7.57 billion during the quarter from $20.75 billion a year ago.
The senior Merrill executive said that the comparative flows from a year ago were artificially inflated by a rush of assets into advisory from brokerage accounts because of the Department of Labor’s now-defunct fiduciary rule. Merrill had prohibited commission-based retirement accounts, but rescinded the ban this month to reflect the DOL Rule’s demise.
Merrill’s broker headcount inched up by 18 over the three months of the third quarter, reflecting additions from its training program and a near-record-low attrition rate of 2.6% among experienced advisers, the executive said. Attrition through moves to competitors was an even lower 1.9% among the firm’s top two quintiles of producers.
Merrill also is getting a small lift in advisor count through its “Accelerated Growth” program, which focuses on hiring novice brokers from smaller regional and independent firms with between three and eight years of experience. While the firm brings about 1,500 inexperienced people into its three-year training program, it has hired about 50 into the Accelerated Growth experiment.
Bank of America also sells brokerage services through Merrill Edge advisors who are based in its consumer bank branches. The bank, which is opening 600 Merrill Edge investment centers by 2020, said Edge brokerage assets grew $37 billion, or 22%, to $204 billion during the third quarter. Merrill Lynch Wealth’s 102 regional market executives are incentivized to develop strong working relationships with Edge to encourage referrals of more sophisticated clients from the no-frills bank-based network. “It’s become a very meaningful part of the activity,” the executive said of referrals from Edge.