Merrill Lynch will not alter its financial advisor compensation grid for 2020 because the wirehouse has achieved the client growth goals it set when its management began modifying pay formulas a few years ago, according to a senior Merrill Lynch executive.
Although three months ago Merrill Lynch managers voiced similar sentiments, the senior executive left no room for doubt today, when only a few weeks remain until the wirehouse formally unveils its 2020 FA compensation grid.
“Take that off the table,” the senior executive told reporters at a press conference held after the wirehouse’s parent Bank of America reported third quarter earnings, referring to questions about potential changes to the grid.
The senior executive also specifically ruled out any increases in 2020 to the number of new client households, set at six in 2019, which FAs are required to add to their rosters each year to maximize their compensation. At Merrill Lynch and other wirehouses, FA compensation is largely based on formulas that factor in the revenues they generate from their clients’ advisory and transactional fees.
“We really don’t want to pre-announce,” the senior executive said about the 2020 FA compensation grid, which will be formally presented in November. But he added advisors “should not be expecting compensation changes moving into 2020.” Specifically, he noted no changes compared to the multiple changes made to the grid since 2017.
“Our objectives were to turn on the growth engine and to ensure that we were delivering shareholders,” he said, noting that BofA wealth management units have achieved those objectives.
“We’re not going to have compensation changes going into 2020. We had a significant number of changes in the last two years which have been very beneficial to the performance [of the] business overall, and to the performance of individual financial advisors as their practices have been growing, and there will not be changes going into next year,” the senior executive said, adding: “Just to be more specific. We’re not going to increase growth rate targets in 2020.”
The tweaks to the “growth grid” under the 2019 plan did not alter the wirehouse's fundamental carrot-and-stick approach for encouraging advisors to add new client households and assets under management. That approach initially led to 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, goals were set to have advisors add at least six new households to their client roster to qualify for “growth grid” awards, and they risked losing pay if they didn’t add a minimum of four households.
At the press conference today, the senior executive said current FAs on average are adding 5.5 new client households per year but that could rise to six by year end.
Also under the 2019 plan, FAs 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.
Initially after the 2019 grid was unveiled, Merrill Lynch advisors reacted negatively to the possible pay cuts, two recruiters and a former Merrill Lynch advisor who spoke with advisors still at the firm told FA-IQ at the time.