Merrill Lynch's plan to seat up to 300 young advisers in branch offices with its most experienced and profitable financial advisers could be a boon to business, with referrals flying back and forth, or it could backfire and add unnecessary friction among its sales force, according to industry observers.
Merrill Lynch has long been the financial advice industry's leading trainer of young brokers. Along with two key competitors, Morgan Stanley and UBS Financial, the firm has said in the past couple years that it was going to reduce its effort to recruit experienced financial advisers from rivals, which is expensive and risky.
Now Merrill Lynch is taking those initiatives one-step further. It said on Monday it intends to hire 300 young advisers, who will be paid in salary, to work alongside with the firm's most experienced and profitable veterans, who are typically paid 35 cents to 45 cents per each dollar of revenue they produce.
Paying advisers a flat salary, plus an annual bonus rather than a percentage of revenue, is widely believed to be a much more profitable formula for the firm, according to industry observers.
The advisers will be drawn from new applicants and advisers already working in Merrill Lynch's call centers, where clients with less than $250,000 in money to invest, talk to an adviser who is part of the firm's Financial Solutions Advisors group, or FSAs. The FSAs work under the firm's online and robo-advising brand, Merrill Edge.
"A large number of call center, Merrill Edge advisers can get burnt out," said Casey Knight, executive vice president and managing director at ESP Financial Search, a recruiting firm. "From a morale stand point, this is good. It moves them a step or two closer to becoming a full-blown financial adviser."
From Merrill Lynch's standpoint, adding the Merrill Edge advisers to offices is a way to better serve a range of clients, said Louis Diamond, an industry recruiter.
But experienced advisers, some who have had to hand over smaller accounts to the Merrill Edge business, may disagree, Mr. Diamond said.
"Some advisers will think it's an encroachment on their territory," he said. "It's kind of like putting enemy soldiers into allied territory."
The Wall Street Journal first broke the news about Merrill Lynch's intention to hire the new advisers and place them in offices with experienced reps.
Jerome Dubrowski, a spokesman for Merrill Lynch, downplayed any potential friction between the two different types of advisers — one with a salary, one working for a percentage of gross revenue — working side by side. He noted that there were plenty of client referrals to keep everyone happy.
"Essentially, the two groups are dealing with different client segments," said Mr. Dubrowski. "Last year, the firm had a record year with interaction between FSA advisers and wealth management FAs. Look at the referrals. Last year Merrill Edge referred 45,000 potential opportunities to Merrill Lynch FAs. And Merrill Lynch referred 46,000 clients to Merrill Edge."
"Cooperation between the FSAs and the FAs has been phenomenal," he said. "That will only get better." Hiring the advisers could start as soon as the next few weeks, he said.