31 May2018
Easy Come Easy Go – Merrill’s New Compensation Plan May Prompt Its Advisors to Cut Their Losses and Run; INDUSTRY PERSPECTIVES FROM FRANK LaROSA

The well-publicized release of Merrill Lynch’s revamped advisor compensation plan has left the industry rumbling and Merrill advisors apprehensive. The goal touted by Merrill for the plan is to create cross-selling opportunity with Bank of America, increase new household client acquisition, and assist advisors in hitting their mid-year grid growth targets. The reality of the new plan; however, seems to be veering far from the outlined intent, at least from the advisors point of view.

First, the new compensation plan provides a 2-percentage point increase only to those advisors reaching the specified goal of two referrals to Bank of America – essentially limiting the potential for compensation bonuses that Merrill advisors have come to expect through previous year’s compensation plans. The new Merrill plan also brings with it a mandatory requirement of advisors securing accounts with $250,000 in new assets, taking away advisor flexibility in what types of new accounts they want to target for their business growth. Most importantly, the new Merrill plan is retroactive to the beginning of 2018 meaning advisors who don’t hit targets can have compensation they already received pulled back from future paychecks.

The motive of the Merrill Lynch compensation plan is confusing at best and downright foolhardy at worst. Under the plan’s structure, a top overall producer who does not hit new business growth goals would see a decrease in pay – never a good thing for morale. Additionally, the ‘must refer’ conditions create an environment where advisors may feel forced to put clients into products that might not be right for them to reach the company specified targets, which could result in a shockwave of dissatisfaction with both advisors and clients alike.

Ultimately, it is in Merrill’s revenue where today’s compensation decision may result in tomorrow’s future pain. Advisor talent is a firm’s biggest asset. Decrease your top producers pay and you can expect them to head for the doors and look for greener pastures elsewhere. The temporary gains Merrill may see from increasing their high-income household clientele may turn into a rapid loss if their confusingly executed compensation plan picks the pockets of too many of their leading advisors.

Growing assets is good as we all know, and is a primary driving goal for creating business synergies through cross-selling.  At what cost though will those efforts come to Merrill? Only time will tell as we see how advisors react to the now you see it now you don’t impact the new Merrill compensation plan has on their paychecks.

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