Advisers on the Move

As it talks up growth, Merrill Lynch sees spike in advisers heading toward the door

Some advisers turned off by emphasis on signing up new clients and selling bank products

Jul 24, 2019 @ 10:00 am

By Bruce Kelly

Merrill Lynch's incentive plan to get advisers to sign up new clients and cross-sell more products from parent Bank of America is paying off in new business for the wirehouse, but it is also pushing some of those advisers out the door.

For the first half of the year, Merrill lost 189 advisers on a net basis compared with 20 advisers leaving in the same period in 2018, according to an analysis by InvestmentNews.

Rival firms and former Merrill executives and advisers point to the firm's recent shift in its pay plan as a prime motivator behind some adviser moves.

One adviser who left Merrill this year said that the recent changes in its pay plan clearly rewarded advisers bringing in new clients and getting existing clients to use Bank of America products and services, from checking accounts to mortgages.

"The recent pain points for Merrill Lynch advisers is the emphasis on referrals, new banking accounts, things of that nature," said Jerome F. Lombard Jr., president of the private client group at regional broker-dealer Janney Montgomery Scott. "It's top of mind — changes to policy that will effect advisers' compensation."

InvestmentNews expanded its Advisers on the Move database earlier this year. It is now designed to capture all recruiting activity of retail financial advisers or teams of advisers as they move from one firm to another.

To qualify as a move, no more than 60 days can have elapsed between the date an adviser or team leaves one firm and the date they join another. Any adviser registration changes that came as a result of merger and acquisition activity are not recorded as moves in the database.

Over the past decade wirehouses have experienced a steady flow of advisers and assets leaving for other financial advice platforms. Advisers at wirehouses are typically paid in the neighborhood of 40% of their annual revenue, and they can double that portion at an independent broker-dealer. Or, if they open a registered investment advisory firm, they become independent business owners and control the equity in their practice.

Merrill's recent push to reward its 14,690 financial advisers and brokers for opening more new accounts and cross-selling banking products — and penalizing those who don't — has been a boon for some advisers but a burr in the saddle to others.

Last month, for example, two Merrill Lynch teams managing more than $1 billion in client assets combined left to join an RIA and broker-dealer in Indianapolis, Sanctuary Wealth.

The CEO of Sanctuary Wealth, James R. Dickson, is a former managing director at Merrill Lynch who bought and broker-dealer David A. Noyes in 2017, later renaming it Sanctuary Wealth. Since then, he has recruited about two dozen teams to the firm, with about one-third of those coming from Merrill, he estimates.

"Most advisers we talk to describe the changes to the Merrill Lynch pay grid as death by a thousand cuts, and the culture of the bank becoming more prevalent," Mr. Dickson said.

Merrill regards the new comp plan, first introduced at the end of 2017 and then modified a year later and known as the "growth grid," as a clear success.

Its parent, Bank of America Corp., reported last week that Merrill advisers had brought in more than 35,000 new households over the first half of the year, an all-time high and 11 times the number they brought in during the same period two years ago, before the growth grid plan was put in place.

Last year, 70% of experienced advisers achieved a record year and this led to a record number of advisers becoming $1 million and $5 million producers in 2018 for the first time, noted Merrill Lynch spokesman Matt Card. The firm expects another such record in 2019, he added.

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