Merrill Lynch's incentives for new accounts paying off

Rewarding brokers who sign up new high-net-worth households — and penalizing those who don't — is working, according to the firm.
APR 16, 2018

Merrill Lynch's move last year to align its compensation grid for its 14,829 brokers and advisers to hustle after new accounts appears to be paying off. The wirehouse said on Monday that assets under management flows of $24 billion for the first quarter were the third-highest quarter on record and reflecting strong client activity. What's more, advisers doing new business with affluent households is up 60% compared with the same quarter last year, according to a source familiar with Merrill's operations who asked not to be identfied. In November, Merrill unveiled its pay grid for 2018. Merrill Lynch advisers who bring in a healthy number of net new accounts will be rewarded, while those who fall short of new company goals will see compensation cut. The plan was called the "growth grid." For example, advisers this year who open five new accounts of so-called affluent households with $250,000 or more in assets or two $10 million households — designated ultra-high net worth — will also receive 1% more in cash. On the other hand, advisers who bring in less net new business, only three affluent households or one ultra-high net worth household, will have cash compensation cut by 1%. "The thundering herd is moving very strongly to accelerate client acquisition," the source said. "This is a great franchise but management has always been self-critical. Merrill last year felt the need to increase the focus on growth." Bank of America, Merrill Lynch's parent, released its first quarter earnings on Monday. Merrill Lynch reported record quarterly revenue of $4 billion, up $200 million, or 5.3%, when compared with the final three months of 2017. "Merrill Lynch advisers are reacting positively to our growth initiatives, including the 2018 compensation program which incentivizes [for] household and other types of responsible organic growth," said Paul Donofrio, Bank of America's chief financial officer, on Monday morning during a call with analysts to discuss earnings. "Total organic household acquisition for the quarter was the highest we've experienced in quite some time." Meanwhile, Merrill Lynch's headcount of brokers and advisers dipped slightly less than 1% at the end of March as compared to the end of December. But the firm reported year over year growth for the quarter of 272 advisers at the end of last month. "We experienced record low competitive adviser attrition for the quarter," Mr. Donofrio said.

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