Merrill Lynch to Halt Broker Recruiting
May 12 2017 - 2:41PM
Dow Jones News
By Michael Wursthorn
Merrill Lynch will temporarily stop paying top dollar to recruit
experienced brokers, according to a person familiar with the
matter, the latest brokerage to make changes to how it compensates
brokers poached from rivals.
The firm, as it navigates broader changes to its business under
the Labor Department's fiduciary rule, has told some executives
that as of June 1 it will no longer offer signing bonuses that
typically paid top brokers who join Merrill as much as seven
figures, the person said.
Potential recruits who are already being courted by Merrill
before the deadline won't be affected and will still be offered the
typical signing bonuses, the person said. But after June 1, a pause
on all recruiting will be implemented as the Bank of America
Corp.-owned brokerage develops a new incentive package, the person
added.
Meanwhile, Merrill is testing a new incentive plan geared toward
attracting brokers with less experience from regional brokerages
and independent broker-dealers, among others, the person said.
The program, which bears similarities to programs offered by
firms like Edward Jones, would target brokers with three to eight
years of experience and would guarantee a base salary for three
years. On top of the base salary, they could earn additional pay
via a bonus, as well as a percentage of the fees and commissions
they generate.
After their first three years with Merrill, those less
experienced recruits would shift toward a broker's typical
compensation model there: a percentage of the fees and commissions
they generate using the so-called compensation grid on top of
incentive bonuses for new assets and lending, among other
activities, the person said.
Merrill doesn't intend to modify how it currently pays brokers,
the person added.
AdvisorHub earlier reported Merrill's recruitment changes.
Merrill's actions likely signal an end to often expensive
practice of recruiting brokers from top rivals, something brokerage
executives often called "prisoner exchange," as firms look to tamp
down costs and comply with Labor Department's fiduciary rule
requiring brokers to act in the best interest of retirement
savers.
"For a long time all the [brokerages] felt the price of
recruiting had gotten out of hand," said Mindy Diamond, president
and founder of Diamond Consultants, a Morristown, N. J.-based
recruiting firm for financial advisers that does some business with
Merrill. "It remains to be seen if it's a sound strategy."
Ms. Diamond said the move will likely make it harder for brokers
who generate $1 million to $2 million in fees and commissions
annually to move their businesses to Merrill. Brokers or teams that
generate more revenue will likely be able to take advantage of
Merrill's revamped recruitment offer, she said.
Last year, UBS was the first big brokerage to announce it would
reduce by 40% the number of brokers it poaches annually. UBS said
it would use the money it saved from hiring expensive rival brokers
to better compensate its existing broker force, while still
selectively recruiting big-money teams of brokers.
The overall size of recruitment deals had already been falling
due to the fiduciary rule, Ms. Diamond and other recruiters said.
Firms including Morgan Stanley were forced to cut the overall size
of their deals late last year by removing the incentive-laden
back-end portions of those packages to avoid potential conflicts
that are problematic under the fiduciary rule.
Such deals were typically structured to pay three times the
annual revenue a broker generates off fees and commissions, with up
to 150% paid out initially when the broker is hired, while the rest
had to be earned after hitting certain asset and revenue targets
over the life of the deal. Those back-end hurdles were at odds with
the rule's requirement that brokers minimize conflicts that might
cause brokers to give conflicted advice.
Brokers had often dubbed the traditional recruitment deals
offered by Merrill, Morgan Stanley and others as "golden handcuffs"
since the signing bonuses were usually given in the form of loans
forgiven over as long as nine years.
Write to Michael Wursthorn at Michael.Wursthorn@wsj.com
(END) Dow Jones Newswires
May 12, 2017 14:26 ET (18:26 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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