Merrill’s Training Overhaul Further Blurs Bank-Brokerage Lines–Analysis
If you want a glimpse of the wirehouse broker of the future, look at how they’re being trained.
Merrill Lynch Wealth Management’s revamped advisor training program unveiled this week will draw the next generation of advisors primarily from consumer banking roles and is a major next step in shifting the firm to a blended bank and brokerage business model, according to industry recruiters, consultants and former managers at the firm.
The shortened 18-month program relies on the bank for customer referrals rather than cold prospecting, a strategy that is more akin to banks or discount brokerages such as J.P. Morgan Chase, Charles Schwab Corp. or Fidelity Investments, where salaried brokers build a book from bank or self-directed referrals.
“[T]his is a PROFOUND culture shift, albeit one of many steps that Bank of America has taken over the past decade to make Merrill more… bank-like, and less Thundering Herd,” financial planning guru and industry blogger Michael Kitces posted on Twitter on Monday. “Firm-generated clients [are] more likely to stay [with] the firm if the advisor leaves, and it attracts advisors who aren’t inclined to build their own businesses anyway.”
The move also raised concerns that having a brokerage force that is more ingrained within the bank could make it easier for Bank of America to implement a salary-and-bonus structure, which consultants and recruiters have said would be more economical for the company than having to pay brokers a scaling portion of the revenue they generate.
“Our call, years ago, was that Merrill is headed down the path of salary and bonuses for FAs. It’s in the bank’s DNA,” said Mark Albers, a former Morgan Stanley and Merrill manager whose company has recruited out of Merrill. “This is just one more step.”
For its part, Merrill Lynch Wealth Management President Andy Sieg offered reassurances that the firm’s production-based grid payout is not going anywhere.
“Our compensation model has not changed,” Sieg said in an emailed statement. “The grid is not going away.”
The entrepreneurial spirit will also still remain as neophyte brokers will lean on LinkedIn outreach and referrals to build their book, Sieg said on Monday in introducing the plan on a call with reporters.
“We expect them to exhibit the same entrepreneurial skills and capabilities that existing Merrill Lynch advisors do,” Sieg said about the advisors graduating from the revamped training program. “Self-sourcing high-net-worth and ultra-high net worth client relationships will absolutely be a part of their long-term success.”
The primary goal is to more than double success rates for candidates to as much as 80% and promote diversity given that the bank pool had much higher portions of women and minorities than Merrill’s training program, Sieg said. The comments were echoed by Merrill divisional executive Lindsay Hans who said at an industry panel on Thursday that the “sink or swim mentality” of broker training programs was not only an antiquated way to build a book but also made it harder for new, diverse candidates to succeed without proper support.
Michael Rose, an associate director for the wealth management practice at Boston-based Cerulli Associates, agreed it’s a solution for the next-generation that other bank-owned firms are likely to follow as they grapple with an aging advisor force and boosting diversity despite typically low graduation rates.
“It’s very hard to find that person that’s both a great salesperson and also a great advisor,” Rose said.
The Schwab model has caught the attention of other wirehouse executives as well, including one at a Merrill rival who noted that Schwab’s stock trades at a multiple near 32 times earnings, compared to around 12 for Morgan Stanley and 18 at Bank of America and has margins over 40%, well above the high 20% figures at the two largest wirehouses.
“If anything, we have our eye on Schwab,” said the senior executive, who spoke on condition of anonymity. “They have a really good multiple and they do drive organic growth.”
As far as Merrill or any wirehouse moving to a 100% salary-plus-bonus compensated advisor roster, Rose doesn’t expect that happening soon or suddenly. The wirehouse model will “evolve,” he said, adding “there will be a place for a salary-plus-bonus advisor.”
“The wirehouses have a business model that’s been very successful and their advisors appreciate that business model,” he said. “I’m not sure firms are looking to just suddenly upset the applecart.”
From Merrill and the parent bank’s point of view, the new training strategy makes sense because brokers will be versed in selling more banking or lending products by the time they become brokers, according to Mark Elzweig, a New York-based recruiter. That had been a complaint among some old school stock-focused brokers who have left in recent years.
“Bank brokers can be relied upon to dutifully execute a prepacked investment program mandated by their company since the firm is the source of all their leads,” Elzweig said.
The devil, however, may be in the details for advisors who value owning their books of business. Merrill advisors who receive bank referrals have to sign one-year non-solicitation agreements covering those accounts, according to a complaint the wirehouse filed earlier this year when it was seeking a temporary restraining order against a team that left for Wells Fargo Advisors.
Merrill never defected from the 2004-inked Protocol for Broker Recruiting, which allows brokers to pursue more easily their clients if they bolt from an employer, but it argued–unsuccessfully–in the state court case that a breach of the bank referral agreement invalidated Protocol protections for the brokers’ entire book.
“It’s to protect the assets,” Casey Knight, a Houston, Texas-based advisor recruiter, said. “They are building a model that they know they want and that they expect to be profitable.”
Knight predicted that Bank of America would be successful in building the model, and it would appeal to many next-gen advisors concerned about how to build a book in the age of do-not-call lists but said it could put some more tenured brokers on edge.
“The biggest takeaway right now is how evident it is today that they are quickly transitioning to just being a completely different firm,” Knight said.