Merrill Lynch Wealth Management (“Merrill Lynch”) has, at the directive of its parent company Bank of America (“BOA”), rolled out a new broker recruiting program in an effort to trim costs, a move that falls in line with consolidation trends in the larger wealth management industry. Merrill Lynch is opting out of the expensive bidding wars between banks for experienced brokers with large client books. These recruiting initiatives, involving head hunters and recruiting agents, and six to seven-figure promissory note inducements to entice brokers with high-net worth client lists, are already being rolled back industry-wide.
At the same time Merrill Lynch is rolling back its recruitment of veteran brokers, it is aggressively expanding its wealth management division. Merrill Lynch is pursuing this strategy through a pilot program that involves hiring inexperienced, often new advisors—and paying them a salary with limited performance-based compensation inducements. Merrill Lynch appears to have made a risk reward calculation, and determined that paying veteran brokers sign-on bonuses in multiples of their yearly book revenue was no longer a viable investment. Given the propensity for brokers to transition between banks in a race to the highest bidder, and an industry wide slowdown in active wealth management as assets move into lower cost exchange traded funds (“ETFs”), Merrill Lynch has opted for a lower-cost approach to its wealth management strategy. As of June 1st, Merrill Lynch will no longer pay sign-on bonuses for brokers.
Given that the average age of wealth management advisors is close to 60, and the industry of active management is contracting, Merrill Lynch is looking to hire and train young, aggressive brokers to replace its more expensive and retiring veterans. The new compensation grid, which skewes towards base salary rather than performance-based bonuses, sets a precedent for lower compensation that reflects the challenges that the industry faces. BOA Chairman Brian Moynihan has stated that in regards to bank profits, “not every dollar is a good dollar,” which could be interpreted to mean that the risk of closely tying bonus packages to meeting recruiting goals is now outweighing the rewards, due to regulatory pushes and legal risks in the backdrop of active management contraction.
Several other broker dealers have also severely curtailed their hiring strategies, including Union Bank of Switzerland Financial Services (“UBS”), which announced plans to cut its broker recruiting efforts by 40%. Several European banks have opted for shuttering their American wealth management divisions entirely, deeming them neither cost-efficient nor a strategic use of assets and personal. Barclays PLC sold its wealth management division to Stifel Nicholaus Wealth Management, and Deutsche Bank AG sold its wealth management division, Alex. Brown and Sons, to Raymond James Wealth Management, and other broker dealers have followed suit.
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