Merrill Tweaks Grid; Lowers It For Smaller FAs

Merrill Lynch executives Dan Sontag, head of Americas Wealth Management, and John Hogarty, COO, released the 2009 Financial Advisor Comp Plan yesterday afternoon.

Merrill Lynch executives Dan Sontag, head of Americas Wealth Management, and John Hogarty, COO, released the 2009 Financial Advisor Comp Plan yesterday afternoon. The good news? It’s a little simpler to understand, it jettisons the annoying ticket charges and it raises the payout grid. The bad news? It lowers the payout by half for advisors who have been working there for six years but produce just $200,000; they’ll now only get paid 20 percent of production and just 25 percent of production if they produce $200,000 to $299,999.

“The rumor was this was going to be really simple,” says one Merrill advisor with more than $200 million in AUM. “It is simpler, but it’s not simple.” And, the bottom line is: “It’s a step up for the $600,000 guys and, basically, management is saying, ‘Let’s dispose of the lower end.’” The $600-k producers will receive a 2 percent bump.

“For a lot of people it is a non event, it looks on the high end to reward people, though some of it is funny money,” says Danny Sarch, founder of Leitner Sarch Consultants Ltd., a recruiting firm in White Plains, N.Y. “The ‘Mendoza line’ has been raised and it is tougher than ever for lower end producer—the wirehosues are saying we don’t have a place for you.”

The new grid is one payout rate regardless of product type or ticket size and has a payout range from 36 to 50 percent. FAs who produce $1.5 million have a new grid called a “Step Up” grid applied on productivity generated above the initial hurdle. One Merrill source says the “Step Up” grid applies “RIA-like economics.” So FAs at $5 million and above get a 50 percent payout and 6 percent in long term productivity.

The grid breaks down like this:
Payout Production
50 percent $5 million
48 percent $3 to $4.99 million
47 percent $2 to $2.99 million
46 percent $1.5 to $1.99 million
43 percent $1 to $1.49 million
42 percent $800K to $999K
41 percent $600K to $799K
40 percent $400K to $599K
38 percent $300K to $399K
37 percent $200K to $299K
36 percent $0 to $199

But, again, the above grid punishes the six-year veterans who produce $300,000 or less. Furthermore, advisors who have 10 or more LOS and produce $300,000 to $399,999 will receive a 35 percent payout.
To give an idea, about half of Merrill advisors account for nearly three-quarters of the firm’s production. Indeed, the firm’s message is clear, lower-producing brokers are either going to get pushed out or they are going to have to step up their game. “They are dead meat,” says the anonymous broker. “But then they probably should be doing something else anyway.”

However there is an additional cash grid increase for achieving annuitized asset hurdles.

In terms of the LOS bonus, FAs who have been with the firm for five or six years and have at least $500,000 in production get a one percent bonus on production. Reps with seven to nine years and $750,000 in production get a 1.25 percent bonus. The award is 1.5 percent for $1 million dollar plus producers with 10 to 14 years LOS, and a two percent bonus for FAs with 15 years or more and $1.75 million in production

The old "Focus on Growth" bonus, where FAs received stock vesting after eight years, was replaced with a new “Strategic Premium Award.” “It’s embedded into the plan, not like a bonus, it is more permanent,” says a Merrill source. Also, instead of just giving restricted units, now advisors have the choice of doing restricted units which either have a three-year vesting, or they can do something new called “Wealth Choice,” which includes a selection of funds to choose from with eight-year cliff vesting. FAs can decide how to allocate the award, so it gives them a little more flexibility and builds up bonus into the compensation plan.

Under similar new-client and fee-based account bonus awards, FAs will be awarded for bringing in new clients with at least $250,000 in household assets and for doing more fee-based business versus commission-based business. In order for advisors to get paid for business, households in the U.S. must reach $100,000 in assets.

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