New Carrots, Sticks in Merrill's 2019 Comp Plan

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.

Non-Comp Plan

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."

Growth Grid

The Merrill Growth Grid, introduced for 2018, was structured to get advisors to add a minimum of three new household accounts of at least $250,000 in assets to avoid a 100-basis-point cut in their payout.

That minimum hurdle grows to four in 2019. For new asset and liability flows, it will stay at 2.5% of prior-year end balances with a maximum hurdle of $7.5 million.

The average number of households added this year has been five, according to the firm.

Also next year, to qualify for a 100-basis-point bonus, advisors will need to have six household credits. The credits will be awarded as follows: $250,000 to $2.5 million, 1 credit; $2.5 million to $10 million, 2 credits; $10 million to $25 million, 3 credits; and over $25 million, 4 credits.

The Growth Growth grid targets an improvement of 5% or more over prior year-end balances, with a maximum hurdle of $15 million, for the bonus.

"The number of advisors getting the Growth Grid Award has doubled from the prior year … ," Sieg said. "More can do so going forward."

Other Incentives

To boost client business across the firm and its parent company, Merrill is pushing advisors to increase their use of investment advisory, trust, lending and banking services. It also wants its advisors to work more with clients online and via mobile apps, as well as via electronic documentation.

A new award will pay advisors 14 basis points on BofA checking and savings account balances vs. 4 bps today if 40% or more of their clients actively use three or more Bank of America Merrill Lynch services.

In addition, advisors with over $750,000 in yearly production credits who have been with Merrill for at least 10 years will receive service awards every five years.

These new awards are 50% higher than before, according to the firm, and will be awarded as restricted BofA shares that vest over three years (down from five in 2018).