New ML comp plan rumors

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Nov 22, 2008 1:28 pm

This is honestly not meant to be confrontational.
 I think it's very obvious where the biz is heading. There will be a few wirehouses who only tolerate huge producers and very large clients and the entire other portion of the business will be serviced by (formerly) average (and below) producers at indys and small, boutique firms. The writing's on the wall, from where I sit, anyway. The thing I'd like to point out is that the wirehouses' position that a practice generating under $600k (or whatever the number is at your wirehouse) isn't profitable is simply not true (period, end of sentence).

Nov 22, 2008 2:13 pm
YHWY:

This is honestly not meant to be confrontational.
 I think it's very obvious where the biz is heading. There will be a few wirehouses who only tolerate huge producers and very large clients and the entire other portion of the business will be serviced by (formerly) average (and below) producers at indys and small, boutique firms. The writing's on the wall, from where I sit, anyway. The thing I'd like to point out is that the wirehouses' position that a practice generating under $600k (or whatever the number is at your wirehouse) isn't profitable is simply not true (period, end of sentence).

 
Think your right on all counts, but guess I would ask who are the wirehouses? Do not think MS will make it alone for more than a few more months and not sure MER or WS/AGE will be anything like now going forward after BAC/WFC puts their footprint into it.  Do agree only big guys/teams will probably be around if this enviroment stays, and I think even after rally comes it will likely be led with a long period of malaise by investors, so only huge books who can make it off fix income and skinny management fees will thrive. Think 1.5-2% management fee guys are at as much a dead end as the tranactional guys.
 
My MS branch just gave a guy doing 375K T-12 at MER a 175% up front deal, so anyone who says under 600K not profitable, tell John Mack, he see's it different.
 
Anyone been drinking more than usual the past 2 months?
Nov 22, 2008 2:43 pm

All I could offer is a wild guess. My guess would be that Merrill Lynch will keep it's name going forward and continue to be the premier "wirehouse", MS could well keep its name even if absorbed, beyond that, UBS, Smith Barney???????? I predict that WS/AGE will be sold, yet again by Wells...to whom, I haven't a guess, but I don't think Wells wants to integrate a huge brokerage unit, just my $.02. The part that nauseates me is that stand-alone brokerages were told that they needed big bank backing to complete and survive and it was the aweful, corrupt, incompetent models of the banks that have destroyed the brokerage model. (My example, of course, is that AGE was very profitable, carried NO debt, paid a solid dividend and had $2 bil in the bank and that wasn't an aceptable and sustainable business model, now they are a piece of debris sinking on the shoulders of capsized WB. It boggles the mind.

Nov 22, 2008 2:47 pm

Maybe so. If so, I certainly had no idea how deep that hole was.

Nov 22, 2008 2:58 pm

I've been at ML for over 20yrs...so I can only speak regarding the wirehouses. My theory....Advisors are headed in the same direction as our firms. Smaller individual advisors will merge or be"acquired" by larger annuitized teams. Instead of 2 and 3 man/women teams running 500+m in assets. We will be 5 or 7 man/women teams running a few billion in assets, each advisor with there own speciality or niche... almost like a law practice. There will be senior partners and associates and the firms will leave how compensation gets spilt to team partners. This is how they just handled the rentention packages...if you were in a team, you were able to split up the package among your FA team members. The larger FA's (getting 75% of TT) were able to give whatever they wanted to their junior partners(those who got zero or 25% of TT). Which to the credit of most of the bigger ML FA's...they did just that(taking care of their junior members). I think if you want to be a stand alone advisor at ML doing 300k...it's going to be rough. Being the largest team in my complex we've already reached out to a guy in our office who we feel is high quality, smart, and a good advisor.

He brings a decent size business but its hard for one person at ML(with all the products and services) to handle their clients effectively. We also reached out to a rookie about joint prospecting via seminars(dangling the carrot of work your butt off and fill those rooms and maybe we'll bring you on the team.) The next 12 months inn this business is going to be real interesting....I just hope in a good way.
Nov 22, 2008 4:01 pm

That's a fact. Sontag gave us word on Friday...

Nov 22, 2008 4:22 pm
fritz:
thats nice..so an account that was 200K in Jan is now 95K (possibly) and now do not get paid.  What kind of idiot in management would penalize a FA and not pay him on that account.  IF thats true and that trend spreads to other shops its says alot about where this biz is heading.
 
That philosophy is already in place.  Any net new households brought in this year that drop under 250k are no longer considered net new households.
Nov 22, 2008 4:29 pm
Exigent:

That's a fact. Sontag gave us word on Friday...

 
What's a fact?  The whole rumor or just parts?
Nov 22, 2008 5:01 pm

No Holiday parties this year. We lost all of our deposits because we are canceling so late. 

Nov 22, 2008 5:38 pm

I'd like to respond to Reagan's comments. First, a LOT of the "rumors"
over the last few months have been true. Our manager said the talk of
the retention #s were BS. He was right...the package was worse
than the rumors for the vast majority of FAs. Second, on a lot of
discussion groups like on Marketwatch you get lots of bitter, cynical
people. I do not get that feeling at all reading these. I see curious
professionals. And many of you are quite funny. have you read the
responses to the post from 4x4 on the drug testing at MS? Who needs to
watch TV? Just grab a beer and read these.
Also, I would like to thank Phan2om for reminding us to not judge FAs by their production. We've got some very high quality people in our ML office that won't be with us in 6 months. These are good guys with mortgages and families. Frankly, I'd much rather have some these lower producers as my neighbor than a few big producers I know.
I always thought I'd retire from ML afer 20+ years. Now...who knows.

Nov 22, 2008 5:39 pm
fritz:
leftml:

I guess I should have qualified where I received the rumor. It's from an old co worker at the ML branch where I worked. He received the info from our complex manager after he signed his contract. New comp plan should be out this week.

I do know there will be 0 payout on all accounts under 100k even if fee based. This from a member of the ACTM.

 
thats nice..so an account that was 200K in Jan is now 95K (possibly) and now do not get paid.  What kind of idiot in management would penalize a FA and not pay him on that account.  IF thats true and that trend spreads to other shops its says alot about where this biz is heading.



It WILL be spreading to other shops. And you can pretty much take that to the bank.

Nov 22, 2008 5:47 pm

Here are a few random thoughts on the current situation at ML. Lower quintile guys are more profitable for the firm because they keep less of what they kill. The house always win. ML is doing two things wrong... They are forcing their rising stars out and forcing the lower quintile guys out. I have spoken to MS and SSMB. I am thinking about talking with UBS this week. If the shareholders vote on Dec 5th that the companies should not merge, ML will be out of business by December 6th. I will have a definitive plan B by the time Dec 5th rolls around. 

Nov 22, 2008 6:26 pm

Lower producers are more profitable for the firm???? Factoring fixed costs( tel, tech, , benefits, registration, office space, e&o, etc, etc,) the break even is roughly 150k-200k. Depending on the geographic area you're in (office space more in NYC than Kalamazoo.) it could be more.



Big producers especially fee based are always more profitable.



I'm in independent, but having been in mgmt at a wirehouse these are the facts.

Nov 22, 2008 9:28 pm

It is counter intuitive but... they are more profitable to the firm because they fall lower on the grid and the house keeps more of their revenue. The only exception is if you get a guy doing an exceptionally low amount of business. 

Nov 22, 2008 9:53 pm
Exigent:

It is counter intuitive but... they are more profitable to the firm because they fall lower on the grid and the house keeps more of their revenue. The only exception is if you get a guy doing an exceptionally low amount of business. 

 
Always wondered how an office which has 7 bodies and 14 empty seats is losing by having a guy doing even 150K??  With a payout of 30%, how can 70% of 150K minus some minimal expenses be a loser for a firm.  Someone please explain that..
 
Couple of friends for our family have about 4-5 Subways and they hope to net 40-60K a year from each.  One poor pruducing broker makes more for a firm than a Subway shop does for one whole year, that a lot of sandwiches to make.
Nov 22, 2008 9:59 pm
fritz:
Exigent:

It is counter intuitive but... they are more profitable to the firm because they fall lower on the grid and the house keeps more of their revenue. The only exception is if you get a guy doing an exceptionally low amount of business. 

 
Always wondered how an office which has 7 bodies and 14 empty seats is losing by having a guy doing even 150K??  With a payout of 30%, how can 70% of 150K minus some minimal expenses be a loser for a firm.  Someone please explain that..
 
Couple of friends for our family have about 4-5 Subways and they hope to net 40-60K a year from each.  One poor pruducing broker makes more for a firm than a Subway shop does for one whole year, that a lot of sandwiches to make.
 
My old AGE manager used to always say that it took about 7k a month to have a butt in a seat in the office.  I don't remember if that was gross or net, but he made it sound like the technology costs were the biggest pieces.
Nov 22, 2008 10:00 pm

Fritz,
Great point! My only guess is the firm is using questionable math. If they take tons of "fixed" costs from NY and divide it by the # of FAs, they might come up with a false break-even amount on a per FA basis. But if you fire all $150k producers, I certainly don't think this reduces their fixed costs! I'd love to see these guys in mngt a year from now. "Mmmm, we let those low producers go and were not making anymore $$. What's up?" No Sh*t!?

Nov 26, 2008 5:24 pm

Now it's Mid December before comp plan is out! I guess they don't want to shock guys before the BAC vote. Wow, ML has handled this fiasco really bad.

Nov 26, 2008 5:33 pm

I love how the ML guys refer to their being saved by BAC as a "merger."

 
I believe the more appropriate word is aquisition.
Nov 26, 2008 5:52 pm

Yea, got the email today that retention was being delayed until December.  Funny, my director keeps telling me how "great" the compensation plan is going to be, but it keeps getting delayed- i suspect that the compensation plan is actually "under review" from BofA, and it's not going to be so "great"


They also cancelled the Holiday Parties, but at this date we forfeit all the deposits.  Another great move.  Either cancel early or hold the party.  C'mon guys, how hard was it to drop the pom poms and make this decision???


Add to these two decisions the "Retention Package on Mushrooms" and you begin to seriously question what the hell is goin on here.
 
I'm beginning to think this firm is a never ending train wreck.