Close Close

Practice Management > Compensation and Fees

Merrill Moves to Trailing 12-Month Advisor Comp Structure

Your article was successfully shared with the contacts you provided.

What You Need to Know

  • Merrill Lynch has made no major changes to its advisor comp structure for 2022, it said Tuesday.
  • But the firm is shifting away from its retroactive comp structure in which payout is determined based on the prior calendar year’s production.
  • The wirehouse is also discontinuing its Transfer Account Policy starting Jan. 1.

Merrill Lynch Wealth Management said Tuesday it’s making no major changes to its pay grid for 2022 but decided to move to a trailing 12-month grid structure and away from its retroactive comp structure in which payout is determined based on the prior calendar year’s production.

The incentive grid “remains core to the comp program,” Merrill said. But “advisor compensation will now be calculated based on an advisor’s previous 12 months of production,” starting Jan. 1, the company noted. “After each month, the most recent 12 months of production will determine that month’s grid payout.”

The trailing 12-month structure is “widely used throughout the industry” and is a “positive” for advisors because it creates more “consistency” and “predictability” in what they are paid, a senior Merrill executive told reporters on a conference call Tuesday.

Meanwhile, no changes have been made to the firm’s growth or team grids.

However, the firm said it is discontinuing its Transfer Account Policy that was enacted in 2018. “Currently, advisors receive a 50% payout on their production on retained accounts for the first 12 months,” the senior executive said. “Beginning in 2022, advisors will receive 100% payout on clients that they retain.”

Merrill also expanded the time in which advisors have to keep clients who were transferred to them from six months to one year after hearing feedback from advisors that the six months were not quite enough to cement relationships with the new clients, the executive said.

Starting in 2022, Merrill also won’t factor assets from a transferred client that an advisor loses into that advisor’s net new asset flows for the year, which could have potentially hurt the advisor’s ability to reach certain targets for bonuses, the executive explained.

Strong Advisor Performance

The decision to drop the Transfer Account Policy was made because the firm’s advisors have been “very successful in retaining accounts and “put a lot of effort into it,” so the “appropriate [way] to recognize that effort [is] by not having a haircut,” the senior Merrill executive said on the call.

Ninety-five percent of advisors are “on track to exceed their production results” from last year, while 86% of them are on track to have their best year ever, the firm said.

Sixty percent of advisors, meanwhile, are “on track to bring in six or more new households this year” and about 20% are on track to bring in at least eight new households this year, the senior Merrill executive told reporters.

In the team grid, 90% of qualified teams already met the firm’s new client engagement standard for 2021, which requires 30% penetration across a broad range of Merrill products, the executive said. “We are planning to provide additional flexibility for that final 10% that aren’t quite there yet; they will now have until 2023.”

Merrill Lynch Wealth Management’s revenue for 2021 through the third quarter grew 19% from a year ago to a record $4.5 billion and it saw record client balances of $3.1 trillion, it also said Tuesday.

A Break From Comp Changes

The lack of a major change to Merrill’s pay grid didn’t come as a surprise because published reports last month said Andy Sieg, president of Merrill Lynch Wealth Management, told an employees’ meeting that the division planned no “large-scale changes” to the pay grid this year after changes made over the past five years maybe “frustrated” its advisors.

The firm said in December last year that it eliminated pay to advisors on all client household accounts under $250,000, but left its core incentive compensation grid intact for 2021.

Performance hurdles for the wirehouse’s growth grid, meanwhile, remained at the same levels introduced in mid-2020, the company said last year. Under that program, introduced by Merrill 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 last year due to the COVID-19 pandemic and those lower hurdles remained in place for 2021, it said in December 2020.

Merrill also slightly tweaked its team grid program last year, which factors in an entire advisor team’s book. The client engagement criteria was simplified and moved to an overall book-level performance view, after previously focusing on individual clients leveraging specific solutions, the company said.

(Pictured: A Merrill Lynch branch office. Image: Shutterstock)