It's autumn, the time for leafy trees to turn spectacular colors, the time to pick out your Thanksgiving turkey and the time for financial advisers to fret and worry about how they will be paid next year.
The four large wirehouses, Merrill Lynch, Morgan Stanley, Wells Fargo Advisors and UBS Financial Services Inc., typically drop their pay plans in the laps of financial advisers during this time of year, causing much consternation for thousands of their employees.
That's changed a bit this year. Morgan Stanley revealed its 2019 pay plan
in July, giving advisers agita when they were at the beach rather than on the couch watching football. The thrust of Morgan Stanley's pay package was to goose financial advisers to chase assets using new technology.
True to form, Merrill Lynch last week
released its 2019 pay plan. Its advisers face the prospect next year of a slight cut in compensation as management tries to bring into balance what the firm pays its 15,000 advisers with the total annual revenue the firm generates.
It turns out that Merrill Lynch's future pay scheme, known as the "grid" in the retail securities industry, is similar to Morgan Stanley's in an unsurprising way.
With a change in policy regarding how the firm pays its advisers who work as teams, Merrill Lynch is attempting to promote online engagement of clients and reward advisers who are successful at it.
Both Morgan Stanley and Merrill Lynch want more of their advisers' business, financial planning, checking accounts and mobile applications running online or through new technologies.
Currently, Merrill Lynch advisers who work as teams together enjoy a special perk: If they hit certain client engagement goals, the entire team can get paid at the level of the adviser who generates the greatest amount of fees and commissions annually. The
grid for financial advisers at wirehouses is typically 35% to 45% of every dollar an adviser produces, and the highest payout at Merrill Lynch is 45%. So, a younger, smaller-producing adviser who works on a team at Merrill can potentially earn a payout of 45%, a higher level of compensation than if he or she worked alone.
That could change in 2020 if teams of advisers fail to meet a new set of goals that focus on what Merrill Lynch is referring to as "digital engagement," according to a source with knowledge of the Merrill Lynch policy.
"The team grid at Merrill Lynch has been in place for seven years," said the source, who asked not to be named. The criteria for a team member to receive the higher level of pay includes having an industry designation, such as that of a certified financial planner, and working with clients in four categories: investment advisory, trusts and insurance, lending and a checking account at Bank of America, Merrill Lynch's parent company.
Two years from now, the criteria for teams to earn the highest payout will change, the source said.
The math is tricky, with goals and levels shifting, a common problem when large institutions like Merrill Lynch change adviser pay to drive certain behaviors.
Teams have to work with clients in three of the four above-mentioned categories. But 40% of their clients need to be doing business digitally.
Advisers' clients will need to use two of the following three strategies: have an online login, use the Merrill Lynch or Bank of America mobile app or use an "e-deliverable." An example of an e-deliverable would be sending a client a statement or prospectus via email rather than snail mail.
"The higher payout for teams is still an attainable goal," the source said. "Advisers have two years to get engaged with this."
What does this mean for the thundering herd? How will this sit with Merrill Lynch brokers? Changes to the grid undoubtedly make some advisers anxious, but it seems inevitable that a greater amount of their compensation will be tied to technology, which reduces expenses, and online offerings, which clients want.
"At Merrill Lynch, we believe a successful investment strategy begins with understanding what matters most to our clients and then providing the best advice and solutions to help them achieve their goals," said company spokesman Jerry Dubrowski. "By combining the high-tech capabilities of Bank of America with the high-touch heritage of Merrill Lynch, we believe we can deliver a superior client experience."
One industry recruiter noted that a large firm like Merrill Lynch micro-managing advisers' compensation to such an extent is sure to frustrate some.
"It looks like the bank is trying to promote its best interest," said Casey Knight, executive vice president of ESP Financial Search. "But is it in the best interest of the adviser and the client?"
Merrill Lynch's advisers will decide.
