Merrill Lynch bets on its next generation of advisers

The wirehouse is creating a new avenue for its 'client associates' to become full-fledged financial advisers

Merrill Lynch is taking another step to bolster the ranks of the next generation of its financial advisers and creating an avenue for younger employees, known as client associates, to become full-fledged FAs.

Merrill’s new plan for its associates addresses several issues facing the firm and the broader financial advice industry. Namely, how do financial advisers who are baby boomers safely and smartly pass their clients from one adviser to the next when they retire?

Training the associates to become full-fledged advisers is a smart move; such associates already work with and know many clients, dealing with them when they initially walk into a Merrill Lynch branch.

With a long history of training young brokers and advisers, Merrill Lynch is tackling the nettlesome problem of succession planning that is facing the broader financial advice industry and its roughly 300,000 brokers, advisers and planners, the majority of whom are in their late fifties and older.

Meanwhile, the registered investment adviser industry is a thorn in the side of wirehouses like Merrill because it is a destination for veteran advisers who want to run their own business and leave large banks to do so. Wirehouses have yet to figure out how to train the next generation of advisers to replace them.

Indeed, RIAs, which often operate as one- or two-person shops, have a much more difficult time handing off clients to younger team members because, well, there just aren’t that many of them working at small firms, as my new colleague Nicole Casperson noted in a recent article.

“The RIA industry is likely to face succession hurdles in the coming years as a majority of large firms reported insufficient investment in the next generation of leadership,” Casperson reported. “Advisers’ current level of confidence in young leaders to take over firm operations is ‘shaky at best,’” she wrote, citing a new industry study.

This is exactly the problem that Merrill Lynch appears to be focusing on through its decision to train formally more of its client associates to become advisers.

And this is key: Merrill Lynch is committing to compensating the young associates who make it all the way to becoming a full-fledged financial adviser. Client associates are currently paid a salary and annual bonus, while financial advisers are paid a percentage of total revenue or sales, known as the grid. The latter is far more lucrative to the adviser and is the industry standard.

Paying client associates who eventually become FAs offsets the broad fear and paranoia of many veteran advisers at big bank wirehouses, namely, that younger advisers will be paid a standard salary and bonus as opposed to a percentage of the revenue they generate through sales and services. Financial advisers at the big bank wirehouses like Merrill Lynch dread that the firm will erase the grid over time and replace it with a salary.

Last year, Merrill Lynch’s parent, Bank of America Corp., moved 300 Merrill Edge advisers into its Merrill Lynch Wealth Management branch offices. Unlike traditional FAs, who, as noted above, are paid a percentage of the revenue they bring into the firm, Merrill Edge advisers are paid a salary.

“I give Merrill Lynch credit for instituting policies that strike me as coming from the field and not as an edict from senior management up above,” said Danny Sarch, a longtime industry recruiter. “My understanding is that veteran advisers have been looking to easily turn some of these client associates into full-fledged advisers.”

“Client associates are the primary place for service and support for clients, working either with teams or individuals’ advisers,” said a Merrill Lynch executive, who spoke privately to InvestmentNews about the new program. “They are close with clients and usually the first point of contact.”

The opportunity for the associate to become an adviser already existed at the firm, he added. But the new program, which kicks off in the fourth quarter, is now much more structured and offers the associates a visible career path, the executive said.

“Historically, a small number of client associates eventually became advisers, and more are making the move successfully,” he said.

It’s clear that Merrill Lynch has a thoughtful plan to tackle the problematic issue of training the next wave of financial advisers and hoping to keep its baby boomers happy until they retire. Giving the client associates the opportunity to reach that goal, and also paying them properly, is a big step in the right direction for the firm and the rest of the financial advice industry.

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