In its 2019 compensation plan, Merrill Lynch is trying to come to grips with rising advisor productivity and overall results, along with rising costs. That means pushing down the gas and brake pedals at the same time in its comp plan for next year.
“We want to ensure that the rate of increase [in compensation] is not exceeding the rate of increase of revenue,” said Andy Sieg, head of Merrill Lynch Wealth Management, on a call with reporters late Thursday. “The combination of changes in the plan are designed to strike that balance.”
According to Sieg, advisor compensation is set “to reach record levels in 2018, and in 2019, it could be even better if we stay on plan. Seventy percent of advisors have record productivity in 2018.”
While the firm aims to “encourage and reward growth and performance,” he explained, it also wants to ensure that its compensation plan “is sustainable.”
That’s shorthand, of course, for including some shifts that are likely to both please and upset its Thundering Herd of 14,838 FAs, who had average annual fees and commissions of $1.04 million as of Sept. 30; veteran advisors hit $1.35 million on average.
Starting in 2019, Merrill Lynch will not compensate advisors for 3% of their monthly production, with a cap on this non-payout of $4,000 a month.
A $500,000 yearly producer, for instance, might have about $1,250 per month in non-compensated fees and production credits out of about $42,000. At a 40% payout, that could translate into about $500 less pay per month.
The vast majority of advisors who have been growing their practices this year, some 90% and up, would not have been hurt by this new policy if it had been in place in 2018, according to Sieg.
The firm says it this its noncompensable production credits policy is “in line with many of our peers.”