merrill lynch

The Thundering Herd Turns to Organic Growth

Merrill Lynch’s turn away from big recruitment packages toward a focus on incentivizing current advisors appears to bear fruit. The number of new households with over $250,000 in assets increased by 60 percent year-over-year, with advisor attrition to competing firms at an all-time low.

Growth initiatives announced by the firm last year are paying off for Merrill Lynch Wealth Management, including changes to its compensation grid. The number of households—those with more than $250,000 in assets—being brought onboard by the thundering herd were up 60 percent in the first quarter compared to a year ago, according to people close to the firm. Net household acquisitions were up 300 percent year-over-year.

“Merrill Lynch advisors are reacting positively to our growth initiatives, including the 2018 compensation program which incentivizes household and other types of responsible organic growth,” said Paul Donofrio, chief financial officer at Bank of America. “Total organic household acquisition for the quarter was the highest we’ve experienced in quite some time.”

One factor contributing to the growth in client acquisition is the firm’s shift away from competitive recruiting. Merrill Lynch was among the largest brokerages in the spring of 2017 that pulled the plug on outsized bonuses to attract experienced advisors to the firm, allowing it to shift the focus towards existing advisors.

It also made adjustments to its compensation plan in hopes of encouraging advisors to stay with the firm for the length of their career and pass their books of business to other advisors within it. The new grid includes rewards (or penalties) based on how effective advisors are at growing new households and positive net flows in their business.

The firm has also increased recognition of advisors fueling the growth. Late last year, it launched the Advisor Growth Network, a network of its fastest-growing financial advisors to work with their peers and share strategies.

Merrill Lynch has outspokenly remained a member of the Protocol for Broker Recruiting, a long-standing arrangement meant to limit litigation between brokerages when financial advisors leave one firm for another.

The protocol had the effect of easing advisor transitions between firms, leaving it, as other wirehouses have done this past year, gives firms more avenues to retain advisors; remaining in the protocol was seen as making it too easy for advisors to change firms and bring their clients along. Merrill took an opposite bet that remaining in the protocol would be valued by its advisors, and that seems to have paid off—the firm reported record-low advisor attrition to competing firms in the quarter.

Overall, advisor headcount within Merrill Lynch was up 2 percent, or 272, from a year ago to a total of 14,829. Headcount was down slightly (less than 1 percent) on a sequential basis, but the firm attributed that to seasonally fewer hires into its advisor training program.

The number of wealth advisors across the global wealth and investment management division, which includes Merrill, U.S. Trust and Merrill Edge, grew 4 percent year-over-year to 19,276, compared to 18,538 in the year-ago quarter.

Merrill advisor productivity was an average $1.36 million during the first quarter, up 3.6 percent from the fourth quarter 2017 and up 5.7 percent from a year ago.

Merrill reported record quarterly revenue of $4 billion, up $213 million, or 5.6 percent year-over-year, driven by higher asset management fees and net interest income, the firm said. Client balances of $2.3 trillion grew 5 percent from a year ago, due to higher market values and client flows. But this was down about 1 percent sequentially due to declining market levels during the quarter.

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