Wirehouse Comp Plans for 2024: What's In, What's Out

Morgan Stanley will offer a few advisor-friendly concessions. For example, the budget for brokers' business plan development costs will increase by 10%.

Merrill Lynch

Merrill Lynch Wealth Management said it was ending two controversial policies as part of its 2024 broker compensation plan.

First, the firm is dropping its five-year-old growth grid, which rewarded brokers for adding clients and accounts but penalized those who didn't grow their businesses. Second, the company will end a policy introduced in 2023 that reduced brokers' credit for transactions, hurting broker commissions.

Merrill is rolling out a new growth award that will pay up to 12 basis points on net flows of up to $50 million. To qualify, brokers must attract three new client households with more than $500,000 in assets each, as well as boost their clients' prior-year total assets and liabilities by 7.5%, in 2024.  

Experts' Reactions

The wirehouses have "gotten the message that it's a super competitive marketplace for top producers with an ever expanding array of options," Elzweig explained. "They need to show their advisors more continuity and simplicity in how payouts are determined." 

"The smart play now is to continue to offer incentives for growth but to keep the hands-off grid levels," he said. "Merrill scrapped its widely disliked growth grid which penalized advisors for not adding enough new households."

He also predicted: "I don't think that any other wirehouse will follow Morgan Stanley by chopping their grids."

Meanwhile, Diamond pointed out: "A commonality amongst most of the new comp plans is firms recognizing that tying bonuses to net new households is a constructive way to incentivize advisors."

This is, he explained in an email, "using more of the 'carrot' than the 'stick,' and data from Merrill and UBS likely shows that net new households acquired increased when they've had these elements." 

"While advisors much prefer simple comp plans where they can be trusted to run their business the way they want, it's clear advisors are competitive and respond to growth linked bonuses," he explained.

"In the end, with all the new comp plans, some advisors benefit, most remain neutral and some are hit pretty hard. In the case of Merrill, larger producers who consistently hit the old growth grid are now penalized based on the new structure," Diamond noted.

And, for compensation consultant Andy Tasnady, managing partner of Tasnady Associates, the main "theme" is that the wirehouses "still want to focus on more growth per advisor but will soften or not include at all corresponding penalties for lower performance year to year."

The "biggest risk (and largest upside opportunity) for advisors' total comp nowadays is the performance of the market," Tasnady said. "With most sales credit now coming from assets under management fees, [a] market drop of 20% would mean [a] 20% comp total drop."

(Credit: Bloomberg)