On Recruiting

Why Merrill Lynch's small-account penalty is a big mistake

New policy could sour relationships in a business built on relationships; from small acorns ...

Jan 11, 2012 @ 8:05 am

By Danny Sarch

Over the years, one of the typical complaints of wirehouse advisers is that senior management in the “ivory tower” does not understand how business is done in the field. For example, when I talk with a long time Merrill Adviser, he or she will get a whimsical look in the eye when they talk of the pre-Stan O'Neal days, when David Komansky (ex Adviser) ran the firm.

Of course, now Merrill is run by Bank of America executives who were never Advisers. And Morgan Stanley Smith Barney is run by James Gorman and Andy Saperstein, who also never were Advisers. Why is this important? It is important because they institute policies designed to save their companies money while not understanding how business is done in the field.

Merrill now penalizes Advisers for opening up accounts less than $250,000. The payout is lower. Of course, any Adviser wants to open up a bigger account. More money under management equals bigger fees and production. Duh. So why would an Adviser even think of opening up smaller accounts? Attention senior management who were never Advisers: Sometimes smaller accounts, when opened, actually turn into very large accounts.

One Merrill Adviser described opening up a professional athlete's account. It was a matter of public record that this athlete had received an eight figure signing bonus. But the athlete, now client, wanted to test the Adviser out with a small amount of money before trusting him with more. In this post-2008, post Madoff era, can you blame prospects and clients for being suspicious of someone new? In the real world (you know, on the ground, way below that Ivory Tower), relationships often begin with baby steps. Trust is earned over time and small accounts turn into large accounts with nurturing, performance, and service.

Merrill apparently used to be quite liberal in allowing Advisers to “household” different accounts. If you have Ms. Big as a relationship, you would not be penalized for servicing her small account nephew because the relationship was linked. Going forward these “householding” rules will be stricter.

Hey, Ivory Tower Denizens: Do you want to regain the loyalty of your Advisers who have a mental picture of your hand in their pockets? If and when the time comes when Small Account turns into Large Account (you know, the way that business is ACTUALLY done), how about giving that Adviser a retroactive bonus reimbursing the Adviser for the lower payout business done while the account was smaller? Your short term thinking endangers your franchise by continuing to anger your revenue generators.

Nah, never mind….please ignore these suggestions.

Your Advisers are in High Demand and Short Supply and you're making my job easier.

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