BofA's Moynihan vetoed Thiel's plan to cut broker pay: Source

Proposal would have cut grid payout for Merrill advisers by two percentage points, according to insider

Dec 20, 2012 @ 11:05 am (Updated 4:02 pm) EST

Merrill, advisers, grid, payout, Thiel
Bank of America CEO Brian T. Moynihan Bloomberg

Bank of America Corp. Chief Executive Officer Brian T. Moynihan blocked a proposal to cut the main component of most brokers' pay for 2013, said a person with direct knowledge of the matter.

The plan would have reduced the so-called grid payout for Merrill Lynch financial advisers by two percentage points, the person said, requesting anonymity because it wasn't made public. The changes, which would have affected advisers generating less than $1 million in commissions, were seen as a way to cushion the costs of new bonuses, the person said.

Bank of America, the second-biggest U.S. lender, proceeded with introducing the new awards for advisers who steer clients to use more of the bank's products. In the month before that incentive was unveiled internally last week, Moynihan decided to overrule John Thiel, head of the Merrill Lynch brokerage, and prevent changes to the grid, the person said.

“If any one firm steps significantly out of the pack, and two percentage points is significant, that becomes a deal- killer,” said Mindy Diamond, president of Diamond Consultants LLC, a Chester, New Jersey-based executive-search firm.

Moynihan, 53, was concerned that the changes would damage Bank of America's ability to retain employees and lure other firms' brokers, the person said. The changes would have affected about two-thirds of the brokerage, known as the “Thundering Herd” because of the firm's bull logo. The Charlotte, North Carolina-based company had 17,533 advisers as of Sept. 30.

Strategic Growth

The grid is a sliding scale that determines the percentage of gross revenue a broker retains as compensation. Advisers earn a higher percentage as they produce more revenue. David Walker, a Bank of America spokesman, declined to comment on proposed changes. Thiel didn't respond to a message seeking comment.

Moynihan has stressed the importance of the Merrill Lynch brokerage for U.S. profit growth and opportunities to sell existing clients more bank products. The division, overseen by co-chief operating officer David Darnell, saw profit rise 50 percent to $542 million in the third quarter as expenses fell and deposits rose.

Bank of America, which purchased Merrill Lynch in 2009, has sought to improve profit without angering its brokerage corps by crimping compensation. Morgan Stanley, the brokerage with the most financial advisers, also introduced new incentives for 2013 while leaving the grid unchanged.

Fund Flow

Bank of America advisers who increase the flow of funds by at least 10 percent are eligible for so-called strategic-growth awards starting next year, Thiel said last week in a presentation. An increase of at least $5 million to $25 million in funds including deposits, investment services, bank loans, mutual-funds and alternative investments is needed to qualify.

The first $10 million in funds growth at Merrill Lynch triggers a bonus worth 5 basis points, or 0.05 percent of that amount, according to the presentation. That swells to 10 basis points for $10 million to $50 million in new funds. Anything exceeding $50 million earns 3 basis points.

The lender also boosted the cash payout for retiring financial advisers to 100 percent to 160 percent of their annual production over four years from 70 percent to 80 percent, according to the presentation. Merrill Lynch offers the awards to retiring advisers in an effort to retain their clients.

Thiel started at Merrill Lynch as a financial adviser in Tampa, Florida, in 1989 and held several management jobs before being named brokerage head in April 2011.

-- Bloomberg News --

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