BAC Bank of America Corporation

By Lisa Beilfuss 

Some Merrill Lynch brokers are bracing for a pay cut this summer as the firm's parent, Bank of America Corp., rolls out a new compensation program that punishes advisers who don't meet certain sales targets.

The new plan is stirring some discord inside Merrill, in part because it emphasizes cross-selling outside brokers' traditional role. Some brokers are also complaining the plan is being applied retroactively in what amounts to a pay clawback.

"It's going to be ugly," said one longtime Merrill broker who has spent recent weeks grousing with colleagues about the changes.

Bank of America unveiled the changes late last year in how its 17,000 Merrill financial advisers would be paid as part of an effort to increase the unit's profit, regardless of stock-market conditions. The plan, which is also a response to a tougher competitive environment, is meant to juice brokers' assets, swell bank deposits and funnel more clients into retail-bank products such as mortgages and credit cards.

The program "is having the desired impact," said Andy Sieg, head of Merrill Lynch Wealth Management. "Advisers are prioritizing client acquisition" and "making referrals to the broader Bank of America at higher levels than ever before."

That is potentially good news for the bank's shareholders, who are already enjoying a bounce in the stock from a stronger economy and higher interest rates. Clients with more of their assets and liabilities spread across a big bank are potentially more lucrative and may be less likely to leave if a broker retires or jumps to a rival.

Merrill and its competitors have traditionally rewarded growth instead of punishing the lack of it, analysts say. Introducing a stick -- the first in recent years by one of the big firms -- reflects how traditional Wall Street brokerages are fighting off an increasing number of cheaper, tech-enhanced options.

Investors have been flocking to automated platforms, discount brokerages and independent advisers who aren't beholden to products affiliated with a big bank.

At the same time, market-driven gains that have helped brokers for nearly a decade have become less reliable this year amid worries of rising bond yields and inflation.

Typically, brokers at Merrill and its rivals are paid a percentage of the fees and commissions they generate. Advisers generating $1 million annually in revenue, the average at Merrill, pocket 42% of that for themselves, or $420,000, for example. The traditional model of paying brokers can give them some latitude over how they serve clients and boost business.

Under Merrill Lynch's new plan, however, pay could move up or down based not just on revenue, but also based on asset and liability growth, the number of new clients the broker brings in and referrals to various parts of the bank.

If minimum sales targets aren't met, the broker generating $1 million in revenue could lose up to $10,000 from their June paycheck because they would be collecting 2 percentage points less of the revenue generated. The penalty then applies to monthly pay going forward.

If brokers hit certain higher targets, they can get up to a 2 percentage point bump in pay, as long as they make two referrals to the parent bank. Monthly pay for those brokers would increase through December, when advisers' progress hitting targets is re-evaluated.

Merrill Lynch didn't comment on the number of brokers it expects to be affected by the pay change in July. Some employees estimated it would at least be in the hundreds.

Merrill told brokers in a memo Wednesday that it would expand the definition of new clients to include some who already have an account with the firm's online discount brokerage platform. "Our goal is to have every single one of you hit your growth grid hurdle," the memo said.

Mr. Sieg said in an interview Tuesday that he expects that the dollar impact of pay cuts will roughly be offset by the bonuses the firm gives to higher-performing advisers. He added that executives across the country will meet with brokers by June to make sure they understand the new program.

Some financial advisers say the changes put too much pressure on them to push products that customers may not want. "When they put referrals in the comp plan, that codified it for us," said Emerson Ham, an adviser who left Merrill Lynch in March after 26 years with the firm. "There's a fine line between encouraging referrals and forcing them."

Firms say clients appreciate the convenience of having everything from retirement-savings accounts to a checking account and a mortgage in one place.

Many longtime Merrill brokers, though, have bristled at the strategy to more closely tie the business to the retail bank. They say they have lucrative and hard-fought client relationships they don't want to jeopardize by pushing incremental banking products that they feel are beneath them or unnecessary.

"I understand why they and other banks do it," said Mr. Ham, the recently departed Merrill broker, of Bank of America's efforts to get Merrill's herd of brokers to drive business to other lines. "But in the end we felt we need to be the judge of what's best for a client."

Write to Lisa Beilfuss at lisa.beilfuss@wsj.com

(END) Dow Jones Newswires

May 24, 2018 07:57 ET (11:57 GMT)

Copyright (c) 2018 Dow Jones & Company, Inc.