Exclusive: Merrill Reversed Pay Limit on Transferred Accounts After Broker Outcry
Sometimes big brokerage firms do listen.
After a backlash from its financial advisors, Merrill Lynch has rescinded a policy in its 2017 compensation plan that would have impaired payouts on accounts they inherit from older colleagues, the company confirmed.
The plan would have severely cut revenue credits determining the payout percentage that Merrill brokers receive on accounts inherited through the firm’s Client Transition Program. The CTP encourages older brokers to glide into retirement by “selling” their customer book to a team in return for payment of up to 160% of their 12-month trailing revenue over two to four years.
The new policy would have cut production credits on such accounts to inheriting advisors to as low as 5% until the entire retirement bonus was paid out, said several former and current Merrill brokers who spoke on condition of anonymity. That enraged both younger brokers looking to increase their book size as well as the growing number of advisors over the age of 55 looking to monetize their practices as they slow down their working lives.
“As our leadership team listened to the feedback that centered on the proposed changes to the CTP program, they felt that they had merit given the various team structures and approaches to succession,” Merrill spokeswoman Susan McCabe wrote in an e-mail.
She declined to comment on how production credits and payouts are currently calculated, citing differences in team agreements, or on why Merrill management initially proposed the change.
Former and current brokers and managers said the CTP alteration was a clear attempt to build the firm’s bottom line at brokers’ expense, and some speculated that senior managers hoped reaction would be muted because of the host of senior executive and fiduciary rule policy changes the firm was announcing at yearend. That proved illusory, and the rollback, which has not previously been reported, was announced in December.
The attempted change was risky because of its potential to interfere with succession planning for veteran brokers trying to “monetize” their practices. The issue has taken on growing importance to firms and advisors because of the aging of the U.S. brokerage force and the decline of training programs to create successors.
By 2022, the wealth management industry is expected to face a shortfall of more than 200,000 advisors, according to consulting firm Moss Adams.
The average age of brokers at the four large “wirehouse” firms — Merrill, Morgan Stanley, Wells Fargo Advisors and UBS Financial Services — is 53.1, Cerulli Associates reported in its 2016 U.S. Advisor Metrics report. About 45% of the big-firm advisor force is over 55 while only 11% is younger than 35, according to the report.
The CTP program changes also threatened to interfere with the longstanding goal of Merrill and other large firms to have brokers work in teams of producers, sales associates and business management specialists. Teams promote higher revenue due to specialization and better client service, firm officials say.
Teaming also enhances retention of client assets when brokers retire or leave because it is more difficult for brokers to leave en masse than individually for other firms, according to executives and industry consultants.
Merrill has relented on other policy changes in the recent past. Amid an outcry from brokers in mid-2015, it to penalize them for giving fee discounts to customers in its rapidly growing managed account program.