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Merrill Lynch Reveals 2019 Comp Plan That Could Reduce Production Payouts

By Miriam Rozen November 2, 2018

Andy Sieg, who leads Merrill Lynch Wealth Management, informed the firm’s 14,838 advisors Thursday afternoon that under the 2019 revisions to the firm’s compensation plan they would not be paid on 3% of their investment-related production credits every month. That hold back amount would be capped at a maximum of $4,000 per month, Sieg told them.

For top-ranked advisors, that means Merrill Lynch could reduce by as much as $48,000 annually the fees and commissions used in the formula to calculate their take-home pay. Put another way, those top-ranked Merrill Lynch advisers, who get 45% of their investment-related production in their pockets, will get about $21,000 less under the 2019 plan than they would have under the firm’s existing compensation schedules.

At a press conference held after he unveiled the new plan internally, Sieg downplayed the consequences of it for advisors’ ultimate take-home pay. He instead redirected the focus to Merrill Lynch’s so-called client “growth grid” award system, first introduced in 2018.

“In the context of the overall programs, there are substantial opportunities for advisors to earn more compensation,” Sieg told reporters.

But, under the 2019 plan, Merrill Lynch intends also to tweak its so-called “growth grid” awards system in a way that raises the bar for advisors to avoid further pay cuts or, alternatively, to get those bonuses.

Pressed, Sieg acknowledged that decelerating the rate of advisor compensation costs, which rose faster than anticipated this year, remains a goal for the publicly-traded company’s management.

“Our focus is to see financial advisor compensation rising. But not exceeding the rise of revenues,” Sieg said. There were “aspects of the program” he said, referring to the 2019 compensation plan, “where we are limiting the rate of growth [of advisors’ pay] over time.”

The tweaks to the “growth grid” under the 2019 plan do not alter its fundamental carrot-and-stick approach for getting advisors to add new client households and assets under management. That approach so far this year has led to about two-thirds of the wirehouse’s advisors meeting or exceeding targets, but the rest of them failing to do so, which has meant management clawed back money from their pay checks.

Under the 2019 plan, advisors must add at least six new households to their client roster to qualify for “growth grid” awards, and they risk losing pay if they don’t add a minimum of four households. But they can add fewer if the households they do add are high net worth – more than $2.5 million in assets. Advisors who add one household client with $25 million or more in assets, for instance, would get credits towards their “growth grid” bonus, as if they had added four household clients with $2.5 million or less in assets.

After the introduction of the “growth grid” this year, advisors told management they wanted a new weighting system for adding households, which would factor in each new household client’s net worth, Sieg said.

But after the 2019 grid was unveiled Thursday, Merrill Lynch advisors were not reacting positively to the possible pay cuts, according to two recruiters and a former Merrill Lynch advisor who spoke with advisors still at the firm.

“Just a way to save money by taking money out of the advisor’s pocket,” concludes Danny Sarch, a recruiter and president of Leitner Sarch Consultants in White Plains, N.Y. about Merrill Lynch’s 2019 plan who had heard about in detail from some of the wirehouse’s advisors.

Another recruiter, who asked not to be named, says about Merrill Lynch’s 2019 plan: “It’s going to have an impact on payout. This is certainly not a raise for the advisors.”

Andy Sieg

But other rival wirehouses have also shaved the amount of advisors’ production that they use as a basis for calculating their take-home pay, the same recruiter says. Therefore, although he describes as unenviable Sieg’s assignment of having to deliver the news about the 2019 plan to Merrill Lynch advisors, he predicts no mass exodus from the firm will follow the news.

“Every firm does something,” the recruiter says.

One former long-time Merrill Lynch advisor who left recently and declined to be identified by name for this story, says he is not surprised by the cutbacks on production amounts used for advisors’ compensation calculations. A few months ago, before he left the firm to start his own independent shop, the same advisor recalls Sieg telling an audience of Merrill Lynch advisors their compensation growth was unsustainable.

“He is telling you Bank of America and HR believe you are making too much money,” the advisor remembers telling one of his top-ranked Merrill Lynch peers at the time about Sieg’s message.