Merrill Lynch's hunt for new clients tamed by COVID-19

Merrill Lynch's recent effort to focus its 17,331 registered reps and financial advisers to bring in new households of clients slowed down last year, with the firm reporting 22,000 net new household clients in 2020. That's compared to 35,000 a year earlier, for a year-over-year decline of 37%.

COVID-19 clearly hampered Merrill Lynch's advisers' efforts to reel in new clients, a push at the firm since 2016, when the Thundering Herd brought in a mere 1,600 net new households. New clients are coveted by advisers and brokerage firms because they accelerate revenue growth.

"While 2020 saw us down from 2019, it’s still a very strong net household performance relative to the pace before the growth strategy kicked in in 2018," said a senior Merrill Lynch executive during a conference call with reporters Tuesday morning.

In late 2017, Merrill Lynch unveiled its pay grid for the following year 2018 that rewarded advisers for bringing in a healthy number of net new accounts, while those who fell short of new company goals saw compensation cuts. The plan was called the “growth grid.”

The changed compensation plan changed advisers' behavior, according to the company, with the number of new clients increasing each year before falling back in 2020. And there's no doubt the pandemic had an effect, with advisers and clients both adjusting to meeting online and virtually rather than face to face, the executive said.

"If you look at 2020 and in the fourth quarter, the gross household acquisition by advisers almost matched first quarter," said the Merrill Lynch executive, who asked not to be named. "So, it looks like a 'U' curve. And in my view, we have nice momentum here."

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The average new client had $1.4 million in assets, the executive said, with Merrill advisers last year bring in more clients with $10 million or more than in the past. "Advisers have made the pivot to how they manage their practice in new ways and how does client development, which used to be face to face, get done in the virtual world," the executive said.

With 17,331 advisers, Merrill Lynch saw a decline of less than 1% last year to its total headcount, the executive said, with client assets in 2020 reaching $2.8 trillion. He added that the firm expects to reveal more details about its training and development program for new financial advisers.