Wall Street wirehouses continue to squeeze their lowest producing financial advisers, with Bank of America Merrill Lynch telling its second-tier brokers this week that they need to sell more products and services to earn the same pay in 2016.
For the first time since 2009, Merrill Lynch is formally changing the levels of advisers' payout “grid”, or compensation scale that calculates advisers' net payout for sales of investment products and services. While it hasn't changed its grid in several years, Merrill has tweaked compensation to advisers over that time, including eliminating pay on smaller accounts.
For 2016, the various levels of pay for each tier of the grid are being raised $50,000. If an adviser at the lower end of a level generates the same fees and commissions in 2016 as he did in 2015, he will likely earn less.
(More: It's the time of year when wirehouses tinker with adviser pay plans)
The floor for the lowest tier adviser at Merrill Lynch wealth management is $250,000 in annual fees and commissions. Upper tier advisers, or those generating more than $1.5 million in fees and commissions, aren't affected.
Since the credit crisis, average adviser productivity at Merrill Lynch has increased from $525,000 to over $1 million, according to the company.
Under the revised grid, lower producing Merrill Lynch advisers could see pay sliced by 2% to 8% if they don't generate greater fees or commissions.
“This affects probably a small percentage of the Merrill Lynch field force, but it's not surprising,” said Dennis Gallant, an industry consultant. “Given the level of overhead, wirehouses in general are constantly focusing on higher producers and generating more revenue from top producers.”
Wirehouses are “economically tilting away from the bottom tier adviser to the middle and top,” said Alan Johnson, a Wall Street compensation consultant. “Costs keep going up, particularly due to regulation, technology and competition.”
“The trend is absolutely there and it will continue: If you are a mid-level broker at a wirehouse you need to get bigger and better,” said Mr. Johnson, who characterized a mid-level adviser as one who generates in the neighborhood of $600,000 in annual fees and commissions.
The goal for Merrill Lynch advisers is to do more with existing clients, bring in new clients, or work in teams.
“We are making some minimal changes to the compensation plan for next year to further incentivize growth and the adoption of our strategy,” said Merrill Lynch spokeswoman Susan McCabe in an email. She said the 2016 compensation plan had “modest changes to some productivity ranges” for advisers.
Squeezing lower producing advisers and smaller client accounts has been the steady trend on Wall Street since 2008 and the credit crisis. Angry at financial institutions they considered profligate for taking federal bailouts, some wealthy clients shopped for new advisers. And the exodus of many advisers from wirehouses was accelerated as deferred compensation, typically in the form of stock, evaporated almost overnight.
Merrill Lynch last year said it was not going to pay advisers for client accounts less than $250,000, noted Danny Sarch, an industry recruiter. “It's death by a thousand cuts, and it's never accretive to the broker,” he said.
