Merrill Ends Advisor Payouts on Small Accounts

Merrill Lynch eliminated pay to advisors on all client household accounts under $250,000, but left its core incentive compensation grid intact for 2021, the wirehouse told its advisors and reporters Thursday.

Performance hurdles for the firm’s growth grid, meanwhile, will remain at the same levels introduced in mid-2020, the company said. Under that program, introduced by Merrill Lynch a few years ago, if advisors bring in a certain number of new households and net flow increases, they get a 1% increase in pay, but if they don’t reach the minimum hurdles, they get a 1% reduction.

The firm reduced the minimum growth grid requirements in June due to the COVID-19 pandemic and those lower hurdles will remain in place into 2021, it said Thursday.

For advisors to “sustain” the “momentum” they have achieved in 2020 despite the pandemic and in a current “environment that remains less normal, we felt it was important to maintain stability in our compensation plan heading into next year,” a senior Merrill executive told reporters during a phone briefing.

Merrill Lynch, meanwhile, slightly tweaked its team grid program, which factors in an entire advisor team’s book. “The client engagement criteria will be simplified and move to an overall book-level performance view,” after previously focusing on individual clients leveraging specific solutions, the company said.

The company also made a slight tweak to compensation on cash accounts, moving from 4.0 basis points to 2.0 basis points on the credits brokers get on cash deposits in bank and brokerage accounts, money market funds, bank CDs and brokered CDs.

Predictable but Welcome News

“The fact that they didn’t change the core grid is always welcome news by advisors” because that is what “the majority of their comp is determined by,” Andy Tasnady, managing partner of Tasnady Associates, said Friday.

Meanwhile, the “minor tweak” that Merrill Lynch made “on the remaining 20% payout” to advisors with clients $100,000-$250,000 was “not a very big issue,” he told ThinkAdvisor. After all, the move was “certainly consistent with the 20-year progress that Merrill’s been undertaking on reducing payouts on small accounts,” he said.

Merrill Lynch was also “the firm that initiated that whole policy probably about 20 years ago, moving small accounts over to their service center phone-based brokerage service,” he pointed out, adding the firm “started with $25,000 accounts and then they really have [led] in pushing up the size of the policy, up to” $250,000 now.

Merrill Lynch cut payouts to 20% for the $100,000-$250,000 household segment in 2012, it said Thursday.

In comparison, rival Wells Fargo’s 2020 compensation plan reduced payouts last year on client households with less than $250,000 in assets to 20%. Previously, that payout level applied to households under $100,000.

“Tightening small account policies just reflects the strategic direction in which firms want to go,” executive recruiter Mark Elzweig told ThinkAdvisor on Friday. “The fiduciary mindset requires more in-depth work with fewer but bigger clients.”