After almost 10 years of a historic bull market, Merrill Lynch's 15,000 registered reps and financial advisers face the prospects of a slight cut in compensation in 2019, when the firm will start withholding a small amount of advisers' monthly fees and commissions.
Merrill is also increasing the number of new households that advisers need to do business with to qualify for an award plan it introduced last year dubbed the "growth grid."
The plan, revealed to the firm's advisers Thursday, calls for Merrill Lynch to hang onto 3% of the revenue they produce each month, up to the first $4,000 in fees and commissions the adviser generates. After that, the adviser is paid 100% of the firm's compensation plan, known as the grid in the securities industry.
Over a calendar year, that means Merrill Lynch could withhold up to $48,000 annually in "production," meaning fees and commissions, per adviser. Merrill's top payout percentage to financial advisers is 45% of their gross production. That means top-producing advisers could lose $21,600 annually in pay.
Andy Sieg, Merrill Lynch's head of wealth management, said Merrill's new 3% hurdle in revenue production is comparable to pay policies at other large brokerage firms.
Merrill Lynch paid a record amount of compensation this year and wants to pay out more in 2019, Mr. Sieg said, speaking with reporters Thursday afternoon about next year's pay plan for financial advisers. The firm's focus is to see financial adviser compensation rising, but it also wants to insure that the rate of increase is not exceeding the rate of increase in Merrill's revenue.
This year, a Merrill Lynch adviser had to bring in five new households to get a "growth grid" award. Next year, they will need to bring in six new households to qualify for that award. Advisers also can get more credits to qualify for that award when they work with wealthier clients.
In 2018, the average Merrill Lynch adviser is bringing in five new households, Mr. Sieg said. Advisers are having greater success in reaching those award levels than the firm expected, he added.
Merrill is also boosting awards paid to veteran advisers, the company said.
The reduction in compensation will undoubtedly annoy some advisers, one recruiter said.
"For a guy producing $1 million a year, the question is, is this enough to get him to leave," said Danny Sarch, an industry recruiter. "Probably not, but it could be a death by a thousand cuts."
Another industry recruiter echoed those thoughts. "This sounds like it might be a nominal amount, but it is always going to be about the principle of the matter, not the money," said Casey Knight, executive vice president of ESP Financial Search.