Merrill FA's in teams and the penalty box

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Jan 13, 2009 9:26 pm

I am in need of some advice, probably both legal and opinions from other advisors.  I'm a Merrill FA on a team here in Southern California .  I started in the business in 2002 out of college at Smith Barney and left there to start a team at Merrill with a senior FA three years ago.  I am a CFP for whatever that is worth.  As most of you know, Merrill, unlike UBS, bases our payout on our individual production numbers, not the team.  This can pose a problem with the new, "improved", comp plan for FA's who are in a senior/junior broker type set up, especially in a down year.   I just turned LOS 6 this January.  Our two person team produced about $1million last year.  My portion, at a 15% payout, means I only produced 150k last year which is 35k less than what I produced the prior year.  There is now a penalty box set up for all brokers LOS 6-9 doing under 300k and for LOS 10+ doing under 400k.  If I produce 200-300k this year my payout is 25%, if under 200k 20%.  Obviously, I understand the reason they did this is to drive out people producing in that ball park....I won't even get into how I spent the past year not losing one client while Merrill's name was in the mud and qualifying for focus on growth while clients wondered if Merrill would go bankrupt...SOME REWARD!!! (sorry...had to vent).  Anywho, the advisor I work with values the work I do and wants to work this out.  We had discussed making me an "Investment Advisor", which is a title at Merrill where basically he pays me a salary (equivalent to what I made last year) and then paying bonuses as we get beyond last years $1million in PCs (which is doable as we were doing about $1.25million in 07 and prior).  This sounded like an ok work-around to me.  Problem comes today when I look at the IA paperwork.  It says I would give up my right to these clients if this FA ever retired (they would be distributed to the office).  This is especially a problem because I brought about $30 million of clients assets with me from Smith Barney.  I am under 30 years old and plan to be in this career for awhile.  I do not want to distribute my clients to the office if this FA retired.  Second concern I have is that it says "IA's are not eligible to participate in protocol".  So if I were to ever leave, I am assuming the $30 million I brought in from Smith Barney would be gone (need a lawyer on this one).  I figure my options are to either:


1) Negotiate a better split with my team member..say 75/25 and aim for 1.3million this year (sort of tough for me to do after having a down year but maybe a good time to do it as next year I'm assuming will be better...but I'm an optimist)
2) Take the IA position but I wonder if I am giving up too much
3) End the partnership and try to make it on my own (on 25-30 million you'd think I could do 300k, thing is I have a decent amount of A share American funds that I've never been able to justify selling people out of who are paying 0.60% in internal expenses to have them pay 3x the fee's with an MFA, performance this year even with american funds being off would seem to indicate that I'm right...but maybe that's my problem)
4) Leave, but I owe money on my upfront loan and would give up FACAAP which is about 30k (which is a lot to me).
5) Get them to lay me off (in which case I believe my FACAAP would vest under the "change in control" provision and take my book somewhere else...i realize all the smith barney, ubs, morgan's etc. probably don't want me but I do believe someplace smaller would take a CFP six years in the business with $25-30 million under management)
6) Cash out my 401k and move to Nicaragua.
 
This is a pretty frustrating time for a lot of us, but I've been reading this forum for a month now, and think I can get some good advise from some of you guys (especially Hank Moody)....seriously though, I appreciate any advice I can get on this!
 
Jan 13, 2009 9:33 pm

Nicaragua sounds nice. 





 
I'd pass on the IA position.  What if 2 years later he decides he doesn't need you and stops paying your salary, or he retires, then you're out your income and your clients.  I'd sit down and talk with him and explain the problem.  Tell him you're working hard for the team but not seeing a fair payout and you want it to improve.  If it doesn't, I'd look at getting all the clients you can and going the indy route.
Jan 13, 2009 9:36 pm

Get your team member to move to a firm that respects both of you and your client relationships. F Merrill/Bac. 

Jan 13, 2009 9:37 pm

Take your 25-30mm...and go to RJ or Stifel and get a 40% + payout and be happy

Jan 13, 2009 9:46 pm

I would go the IA route for the sure thing(that is of course if he values you like he says he does.) I wouldn't worry about when he retires, because he will probably tell you and then you talk to the clients before hand and smooth the transition(vs the risk someone like me picks them up because they got sent to a new advisor). This way is less hassle, but if you sense the winds are changing be ready to pack up and go..

 
Take your $30mill indy or regional... diversify out of the american funds(they are having a bad year, and with the amount of int'l they have in every fund they could be down for a while) and continue to build your practice... I would take names and numbers of people with me also(including your sr broker)
Jan 13, 2009 10:08 pm

CFP, 6 years LOS and 30mil... you could get a lot more respect at another firm... try to work it out where you are, and if it is not to your satisfaction then hit the road and find a firm that is a good fit for you.

Jan 13, 2009 10:11 pm

Your partnership is really indentured servitude. 15%??? Even if the team does $3 mill, you're still under $500k in production. Seriously.

 
Renogiate, and let your "partner" know that your only other economic option is to go independent. He'll likely recognize that if you do, all his clients are at risk. Protocol would let you take all of the team's client info, not just your original clients.
 
The IA option is going backwards, and you seem to really want this career so don't let the current market conditions drive you out.
 
Good luck
Jan 13, 2009 10:20 pm
Northfield:

Your partnership is really indentured servitude. 15%??? Even if the team does $3 mill, you're still under $500k in production. Seriously.

 
Renogiate, and let your "partner" know that your only other economic option is to go independent. He'll likely recognize that if you do, all his clients are at risk. Protocol would let you take all of the team's client info, not just your original clients.
 
The IA option is going backwards, and you seem to really want this career so don't let the current market conditions drive you out.
 
Good luck
 
Understood.  But we had always agreed that once we started getting above $1.25million we would split pc's 50/50 or work something out.  Appreciate the other responses.  If I did go the independent route or leave problem is I still have two years left on my contract and I'm not exactly sure how that would work.
Jan 13, 2009 10:22 pm
Chuck:

CFP, 6 years LOS and 30mil... you could get a lot more respect at another firm... try to work it out where you are, and if it is not to your satisfaction then hit the road and find a firm that is a good fit for you.

 
I used to think that too.  Then the guy from UBS cancelled the recruitment lunch after I told him my trailing 12.  Seems all the larger places are going to be more of the same and I probably need to get more info on the Raymond James of the world...assuming I can't negotiate a better split which is my first option.
Jan 13, 2009 11:34 pm

there has to be an exact case like this in nearly every single ML office in the country. the problem is, ML/BAC gives a rip...



come to UBS and join my team at my payout...45%...all team members get payout of highest team member...

Jan 14, 2009 2:34 am
JoeNatlanta:

there has to be an exact case like this in nearly every single ML office in the country. the problem is, ML/BAC gives a rip...



come to UBS and join my team at my payout...45%...all team members get payout of highest team member...



And you think a 45% payout is something to brag about?

Jan 14, 2009 10:49 am

Funny, everyone always talks about Jones advisors using all Americn Funds.  This guy probably has more on the books than I do.  Interestingly, my AMF wholesaler told me a while back that Merrill is actually their biggest client nationwide.

Jan 14, 2009 8:47 pm

I am at merrill also.  Go the IA route.  Live to fight another day.  Does anyone know if Merrill / BofA will start letting go FA's producing under 300k?


My manager just got fired today.  No notice.  Going independant is not the route for you.  You know that you will never get your whole book out of Merrill.  You would be lucky to get 20-30 percent out. 
 
Be the IA and so what happens. 
 
ALSO...ANY INSIGHT ABOUT BROKERS BEING FIRED?  THAT IS WHAT YOU HAVE TO WORRY ABOUT HAVING A NUMBER AND DOING THE PRODUCTION YOU ARE DOING.
 
Jan 14, 2009 8:51 pm

Don't you know, brokers can't read more than 2 lines. No attention span. You're a thinker an there is no place for thinkers in this business!!!!!



Jan 14, 2009 8:52 pm

Merrill fa's are fags, at the very least stock killers.

Jan 14, 2009 9:01 pm

My problem with all of this stuff, is why does it matter unless you are doing over 1million. Isn't that the first hurdle to becoming your own man, and if not, who cares? You are a piker anyway? Why would you move for less, because you are basically saying I am not going to get there in this production lifetime anyway. The check is not worth the disruption when compared to the check you get when you get to the other side. Cut out the excuses and get yourself over a million, then move and buy yourself the cayman ............ or prius or whatever it is you aspire to.....

Jan 14, 2009 9:39 pm

Hey dude to you....sounds like you have small man complex.

Jan 14, 2009 10:10 pm

If you take an IA position you give up alot of upside potential.  At my firm you can become a financial consultant within a team. There's no deferred comp, no incentive trips. You lose all your leverage within the team.  Why give up your upside now?

I was in a similiar position, and I negotiatied a more favorable split sooner than the original agreement.  It was a little awkward to bring it up,  but once it was over I wish I had done it sooner. 
Jan 14, 2009 10:43 pm

the IA route is a stupid one, and bigboy is an idiot for recommending it...



live to fight another day? BS!!!!!!! take charge of your clients and your career and make the firm realize that you can take more than the 20-30% out of ML...like everyone I know is doing right now.



did you see the BofA news tonight? MER was toast!!! still might be...



go independent or to a firm that will pay the team a higher payout

Jan 14, 2009 11:18 pm

If you have 2 years left, you have to hang around, unless you are willing to pay them back...they will want their money if you leave.

Go to your SR partner and tell him you need more and what does he think it takes to get more. See what he says.



Make sure you have the entire team client base of name, address and phone number in hard copy. Print it out tomorrow.



If they can you, you won't have to pay the $ back. Take your big list and go and be independent.