Merrill Lynch's 2018 Pay Plan Spurs Some Dissent in Broker Ranks
November 16 2017 - 9:29AM
Dow Jones News
By Lisa Beilfuss
Merrill Lynch's pay plan for 2018 is stirring opposition among
some veteran brokers, underscoring tensions in an industry that
faces growing competitive pressure and an aging workforce.
Bank of America Corp.'s wealth-management arm told its ranks
last week that compensation would be revamped for 2018 in a way
that rewards brokers with up to 2% of the revenue they generate for
hitting certain growth and referral targets and punishes them by up
to 2% for missing them, while shifting 1% of most brokers' pay from
cash to deferred compensation.
Together the changes -- which the bank says are designed to
accelerate asset growth and product referrals -- mean the best-case
scenario for 2018 compensation for most brokers is a 1% increase
from 2017 in the revenue they keep and the worst-case outcome is a
3% reduction. Some veteran brokers say the growth hurdles are high
and make it likely that pay will fall for many next year.
While compensating for growth is nothing new, the penalty for
missing targets is controversial because sometimes high performers
have a tough year due to market conditions or other factors, said
Glenn Schorr, a brokerage industry analyst at Evercore ISI. "The
stick is new to wealth management on Wall Street," he said, adding
that its introduction "will bother people."
Merrill Lynch officials defended the new compensation strategy.
"The plan is growth-oriented, aligned with our growth initiatives
and designed so that clients, shareholders and advisers benefit,"
said Andy Sieg, head of Merrill Lynch Wealth Management.
Here's how the new pay program will work: Brokers will have the
opportunity to earn 2% in 2018 upon clearing two hurdles -- 5%
growth in client assets and liabilities from the prior year, which
can come from any mix of products from stocks to mortgages, and the
opening of at least five new affluent-household accounts that have
a minimum of $250,000 of investable assets at Merrill.
Alternatively, the broker can bring in two new household clients
with at least $10 million in investable assets at the firm.
Brokers who don't meet minimum targets of 2.5%
asset-and-liability growth, plus the addition of either three
affluent households or one ultrahigh-net-worth household, would
slide down the grid and see pay fall by up to 2%.
To gain access to the bonus system, brokers need to make at
least two client referrals to the parent bank. This is a change
from last year, when brokers were directly penalized for not making
at least two referrals.
Merrill Lynch, which assigns payout rates based on the amount of
revenue a broker generates from fees and commissions, said in its
most recent quarter that experienced brokers on average pulled in
$1.3 million in annual revenue. A broker producing that much next
year will keep 42% of that in cash, or $546,000, down from 43%, or
$559,000, in 2017. The difference is that 1% is shifted to deferred
compensation, which takes up to eight years to vest.
Yet if one of the growth targets is hit, pay in 2018 will stay
even with last year's $559,000. If both are achieved, pay rises to
$572,000. If both targets are missed, pay falls to $520,000.
One veteran broker who was asked by Merrill to weigh in before
the compensation changes were unveiled said he expects to earn 51%
of the revenue he generates next year, up from 49% in 2017.
But some higher-producing brokers say they are perplexed by the
changes, particularly for brokers who generate the lowest amount of
revenue. The firm eliminated the so-called penalty box, meaning
brokers who bring in less than $350,000, will see their pay rise to
between 34% and 35% of revenue from 20% to 25% in 2017. These
brokers can also earn the 2% additional pay for reaching growth
hurdles.
"It's a weird giveaway," one Merrill broker said. "Why are they
rewarding low producers and taking away from the top?"
The reason, say some observers, is because Merrill is trying to
retain and groom its younger ranks into more successful brokers at
a time when the industry faces an aging workforce, a recruitment
retrenchment and growing demand for technology-driven advice.
Paying more at the bottom gives "breathing room" to brokers just
starting out, said Andy Tasnady, an industry consultant who helped
develop Merrill Lynch's 2018 pay plan.
"The expense there is tiny relative to the overall program,"
said a person familiar with the changes. The person added that the
penalty box had been meant to encourage growth but wasn't
successful at doing so.
Still, some seasoned brokers say they feel jilted. A longtime
Merrill broker said the 5% net-asset-growth hurdle will be
difficult for many but the lowest performers to achieve, as they
have a lower baseline going into 2018.
"They want the old guys out," the broker said. "I feel like an
auto worker on an assembly line being replaced by a machine."
Write to Lisa Beilfuss at lisa.beilfuss@wsj.com
(END) Dow Jones Newswires
November 16, 2017 09:14 ET (14:14 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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